GST/DTC Implementation Roadmap Expected: Pankaj Pandey

Though we expect the government to overshoot the fiscal deficit target for FY15E by 50 bps to 4.6%, it would focus on fiscal prudence and stimulus. Overall, we anticipate total subsidy burden to be around Rs 270000 crore (ie. 2.1% of GDP in FY15E vs. 2.0% projected in the previous interim budget). In indirect taxes, we believe loss arising from extension of excise benefits to auto sector (~Rs 7200 crore) would be largely covered through hike in excise duty for cigarettes (~Rs 6700 crore assuming Rs 1 hike in cigarettes and 10% volume de-growth). We expect burden from implementation of food security bill to remain lower than budgeted due to six month delay in roll out of Food Security Bill coupled with partial implementation (currently 25 states & Union territories) across the nation. Some of the key reforms expected are:GST/DTC implementation roadmap, quick resolution to administrative bottlenecks for infrastructure sector, revive investment cycle through private participation, revival of manufacturing sector and thus job creation, curtailing populist measures, encourage savings, innovative instruments to attract long term and sustainable foreign capital.

2) Which are the sectors you are currently betting upon?

We continue to be bullish on quasi defensive sectors like automobiles, cement and banks with healthy balance sheets. We upgraded capital goods, power, infrastructure, metals and oil & gas to overweight. We are underweight on defensive sectors like FMCG, Pharma and IT.

3) Would you like to put any numbers for the Sensex for CY14?

Sensex earnings grew 17.1% in FY14, partly aided by suppressed growth of 6.9% in the last two years cumulatively. As the high base effect catches up, earnings would grow 16.7% and 15.2% in FY15E and FY16E respectively. We expect Sensex to get further re-rated and trade at 16.5x FY16E EPS of 1835 at 30300 by December 2015 with the Nifty reaching 9050.