Dalal Street

GDP grew by 8.4%, a decline from 8.9% in the previous quarter (2QFY08) and 9.2% same quarter last year (3QFY07). Non-agricultural GDP growth decelerated to 9.8% from 9.9% last quarter and six consecutive quarters of double digit growth before that. As compared to 2QFY08, growth deceleration is most marked for mining, electricity and construction.

Coinciding with the growth deceleration, there has been significant spurt in WPI inflation which has increased by ~200 bps since October 2007. This would make it difficult for RBI to go for an early cut in policy rate.

RCom will be rolling out nationwide direct to home (DTH) TV services before 1QFY09. India’s TV-broadcasting industry is in an exciting growth phase. Advertising expenditure, driven by growing consumerism and spending power, is estimated to result in a 15%+ Cagr in FY08-11CL, while the subscription revenues face structural changes with expansion of DTH services and upgradation of cable services on the back of conditional access system (CAS).

Three DTH players Tata Sky, Dish TV and SUN have already launched DTH services with an aggregate of 4.2m subscribers, while RCom and Bharti are expected to start within the next six months. We believe in the event that CAS is rolled over even in phases, in the remaining metro areas and 55 cities across India it would be a tremendous boost to the prospects of the DTH industry proving an upside to our forecasts.

Short Term Capital Gains:The increase in Short Term Capital Gains tax (STCG) and the indirect increase in Securities Transaction Tax (STT) will disappoint the markets, in our view. On the positive side, the Finance Minister has succeeded in more than meeting his fiscal deficit targets and has forecast a fiscal deficit of only 2.5% of GDP for next year.

Waiver of farm loans – Indian Sub-prime:
The Finance Minister has announced a waiver and a one-time settlement of agricultural loans that will lead to a write-off of loans upto Rs600 bn. While details are still not clear, the Government has said that they will compensate the banks fully for these write-offs.

Autos – gain with excise duty cuts and personal Income tax cuts Autos will gain in the budget with a decrease in excise duty by 4% on small cars, 2-wheelers, buses and CVs. Also, helping autos would be lowering of personal taxes and the impact of the likely announcement of the Pay Commission impact.

Holding companies gain – Double Dividend Taxation set-off
Holding companies can now claim set-off of dividend taxes paid on dividend received by their subsidiaries. This should help companies like Jaiprakash which have presently many SPVs (and in future helps companies like Gammon, L&T etc) as well as finance companies like ICICI, HDFC.