The Hindu Business Line : Impact

EQUITIES may be on weak terrain in the near-term as the turnover tax on stock market transactions could affect sentiment. It could have a bearing on trading levels in the cash and derivatives markets and may enhance impact cost. Over a period of time, investors and traders, alike, are likely to get used to the new system of taxation of securities and price in the benefits of the abolition of long-term capital gains tax and the reduction in short-term capital gains tax.

The capital gains proposals are value-enhancing for long-term investors as well as traders. Once the dust settles on the turnover tax, FIIs may also trade aggressively lured by the reduction in short-term capital gains tax.

Barring the effect of the turnover tax in the near term and the widely expected hike in interest rates, the Budget does not have any major negative that could affect equities. Fundamentals, oil prices, worries over the tepid progress of the monsoon and inflation appear to be more likely to drive prices as the budget hysteria is exhausted.

The absence of change to the interest rates offered by small saving schemes could ensure that these remain islands of prosperity and distort the interest rate curve across the economy.

The focus on agricultural and food processing is likely to benefit companies such as Punjab Tractors, Mahindra & Mahindra, Escorts, Alfa Laval, Praj Industries and Kirloskar Brothers.

The increase in the limit for FDI investment from 49 per cent to 74 per cent may provide a boost to Bharti Tele-Ventures and Tata-Teleservices. It would also enhance the attractiveness of the imminent IPO of Hutchison.

The introduction of tonnage tax is likely to deliver long-term benefit to companies such as Great Eastern Shipping, Essar Shipping and Shipping Corporation of India.

Stocks of companies in the textiles sector are likely to attract attention as policy initiatives have provided a big boost for the third year in a row. The ones to watch are Vardhaman Spinning, Alok Industries, Raymond and Arvind Mills.

Fiscal incentives for R&D may provide a thrust to Maruti, Bajaj Auto, TVS Motor and Tata Motors, to name a few. But gains may not be sharp.

Announcements favouring renovation and maintenance in the power distribution and transmission sector may be beneficial for Jyoti Structures and Kalpataru Power.

The bail-out package of Rs 580 crore for ITI may provide a prop.

The disinvestment through the offers for sale route may not provide a big upside for PSU stocks.

The imposition of service tax on companies engaged in producing content for television and radio may affect the profitability of companies such as Balaji Telefilms, NDTV, TV Today, Zee Telefilms, Cinevesta Communciation and Radaan Mediaworks.

S.Vaidya Nathan