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Dinesh Thakkar, Chairman and Managing Director, Angel Broking talks to Rex Cano on expectations from the Union Budget 2010-11.

What are you expectations from the Union Budget from the stock markets perspective?

From the stock market perspective, I do not expect any tinkering with the securities transaction tax and the short-term and/or long-term capital gains tax rate in the Budget. However, I expect the FM to lay out a roadmap for the timely control of the fiscal deficit situation in the country. I do not expect any significant announcements pertaining to the progress of the Direct Tax Code unveiled last year nor on the implementation of GST, which will seemingly be postponed to 2011. Export sops announced in the face of the global turmoil last year could continue as the exports market has yet to rebound in a substantial and sustainable manner. Further, there could be some additional focus towards agriculture on account of the huge drought the country witnessed this monsoon season. Apart from this, I expect the focus on healthcare, education and infrastructure to continue unabated.

Do you expect any stimulus withdrawal happening in the Budget?

Considering that the Indian economy is back on a reasonable growth path, some withdrawal of the stimulus provided earlier may be withdrawn in terms of a partial rollback of the excise duty (a hike by 2%). However, considering that demand has been robust in the past under much higher excise duty rates, I do not expect this rollback to dent demand. Restoration of the service tax to 12% from the current 10% may also be on the cards.

You have already mentioned that there could be partial rollback of the excise duty, which will impact the auto sector. How about other sectors such as financials, infrastructure and IT in particular?

As far as the banking sector is concerned, we expect the government to announce capital infusion in PSU banks. However, overall the Budget is expected to be negative on account of concerns related to fiscal deficit.

Then there could be some increase in allocation for inevitable areas like irrigation, roads etc as well as tinkering with matters that would ease the process of accessing capital for the infra sector.

The IT-BPO sector is expecting extension of fiscal benefits under the STPI (10A/10B) scheme by three-five years in order to boost investments in Tier-II and Tier-III cities as these places are unable to avail benefits of SEZ.

Do you expect the government announcing any special measures to tackle the inflation?

I do not expect any significant specific measures in terms of changes in import and/or export duties by the government to tackle inflation. However, control over fiscal deficit will indirectly help in controlling inflation. Further, continued focus on agriculture will help in tackling the long-term supply side issues, which play an important role in determining inflation trends.

Which way will the markets react post Budget?

While much of the adverse Budget expectations seem to have been priced in at the current juncture, if the FM delivers otherwise, it could provide a short-term boost to the markets. As far as the long-term India story is concerned, the Indian demographics and the expected growth in Indian corporate earnings have already destined the future course for our markets.

Sources: smartinvestor