Money Morning…


Cars, TVs & other durables to be costlier from Jan15 as government ends excise sop – Sentimentally negative in short term for Auto and Consumer Durable Segment (-ve); Buy on dips: Maruti, Hero Moto, Tata Motors, Eicher Motors, Whirlpool, Hitachi, Blue Star etc.
Government plans to end the excise duty concessions given to Automobiles and Consumer Durables sector in Feb14. The decision could help the government raise additional revenue of up to Rs 10 bn in the remaining 3 months of the current financial year in a bid to achieve the fiscal deficit target of 4.1% of GDP. But the additional yield will depend on the auto and white goods sales in those 3 months.

The previous UPA government, in order to boost the two sectors that were struggling in the wake of economic downturn, had cut excise duty on cars, SUVs, two-wheelers and consumer durables in the interim Budget in February this year. Excise duty on small cars, scooters, motorcycles and commercial vehicles was reduced to 8% from 12% previously. For SUVs, it was cut to 24% from 30%; for mid-sized cars, to 20% from 24% and to 24% for large cars, from 27%. In the consumer durables sector the excise was reduced to 10% from 12%.. Official communication is awaited.

The hike in excise duty will lead to increase in prices of end products and companies will pass-on the same to consumer thru price hikes. The sales may get impacted in short term and that will be reflected negatively in the stock prices of Automobiles and Consumer Durable segment.

Recommend investor to buy the quality names on dip with medium to long term perspective. Focus on Maruti, Hero Moto, Tata Motors, Eicher Motors, Whirlpool, Hitachi, Blue Star etc.

Jaitley likely to bank on PSU dividends to meet fiscal deficit:
Grappling with a tough fiscal deficit target of 4.1% of GDP, amid an expected tax revenue shortfall of Rs 1.05 lakh crore, Finance Minister might look at higher dividend from PSUs compared to last year.

This is apart from the government eyeing deep Budget cuts across ministries and departments. According to guidelines set all profit-making PSUs have to declare dividend payout of at least 20% of their PAT; profit-making PSUs in the energy and infrastructure segments declare dividend of 30% of PAT

FDI jumps 25% in April-Oct FY15:
Inflows of foreign direct investment into India rose by about 25% to $17.35 billion in the April-October period of the current fiscal. In April-October 2013, the country had received $13.82 billion foreign inflows. Improvement in the macroeconomic situation and investor sentiment on account of a series of steps taken by the new government helped attract higher FDI.

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