Derivatives, Futures and Options: 2006

Budget 2006: What Is In It For You...

As A Consumer

Small cars to be cheaper, as excise duty cut from 24% to 16%
Coke & Pepsi promise to get more enticing this summer
Calories back in fashion as FM exempts host of food items from excise
Fridge, AC, Desktop computer & Laptop prices expected to go up
All cooking oils set to become more expensive
Prices of clothing items expected to drop

As An Investor

Hike in STT rate to make market transactions costlier
FDs kept with banks for 5 years get tax breaks
Close-Ended MFs attractive now as dividend distribution tax goes

As A Taxpayer

No changes in direct-tax rates
One-by-six scheme scrapped
Tax sleuths keep close watch on spending

As A Corporate

MAT (minimum alternate tax - on book profit) rate hike from 7.5% to
10% to hit bottomlines
Long-term capital gains now part of book-profit & thus taxable
FBT tax rates reduced selectively but hassels remain

Keep visiting this space to get more insight on Budget 2006...

Highlights of Budget 2006

Big Picture

Finance minister says economic prospects for 2005/06 just as good as last year
GDP growth likely to be 8.1 percent in 05/06
Government aims to raise GDP growth to 10 percent
Gross budgetary support for 2006/07 at 1.73 trillion rupees
FDI inflows up to November 2005 at $4 billion

Rural Investment

Farm sector output likely to grow 2.3 per cent in 2005-06
Government to spend Rs 117 billion ($2.60 billion) on rural jobs guarantee scheme in 05/06
Government to allocate 186.96 billion rupees for rural infrastructure projects in 2007-07
Banks to raise farm credit to Rs 1.75 trillion in 06-07 from 1.42 trillion
Farmers to receive short-term credit at 7 per cent

Health and Education

Education spending to be increased by 31.5 per cent, and health spending by 22 per cent
Allocation for primary education increased to Rs 100.41 billion from 71.56 billion
Allocates more funds for education of minorities, schemes for lower caste people

Industries

Government to promote textiles, automobiles, leather, food processing and tourism for job creation
Food processing sector to be treated as a priority sector for bank lending
Petroleum, chemicals and petro-chemicals investment zones to be set up
India to be promoted as a semiconductor manufacturing hub

Infrastructure

Government aims to raise power generation capacity by 15,000 megawatts by March 2007
Comprehensive review of coal policy needed
Government expects investment of 220 billion rupees in oil refining over next few years. The government will encourage investment in refineries, pipelines and green fuel.
Highways development programme to receive Rs 99.45 billion in 2006-07. The government has identified three new road projects to be built under a new special purpose vehicle.

Highlights of Budget 2006: Reforms Cues Go Missing...

MODEST taxes and modest spending increases marked a Modest budget from a normally immodest finance minister. This don't-rock-the-boat Budget was tailored for the upcoming state elections. Finance Minister P Chidambaram, on Tuesday, steered clear of controversial reforms - some of which had been confidently predicted - that might have raised electorial heat. He didnot utter a word about labour reforms or raising oil prices in line with the Rangarajan committee's suggestions.

The Finance Minister didnot liberalize foreign investment, announce any new disinvestment, tax withdrawals of long-term savings, or impose any new tax. He increased allocations for every conceivable vote bank, but modestly enough to avoid an explosion of pre-election spending that might swell the fiscal deficit. Releived by this prudent populism, sensex shot up by 88 points!

What is cheaper & what is costlier

Cheaper

Small cars
Soft drinks
Shoes
Ice cream
PVC
Alloy Steel
Aluminium
Tin Sheets
Anti-HIV drugs
Anti-Cancer drugs
Pasta
Instant food products
LPG stoves
Fluorescent lamps
DVD drives
Flash drives

Costlier

Packaged software
Umbrella
Walking Sticks
Kitchenware
Tableware
ATM services
Honey
Vanaspati
Credit/debit card services
Share transfers
Internet Telephony
International Air Travel
Travel by cruise ships
Glassware
Computer
Soaps
Cigarettes
Biscuits
Goggles
Henna powder
Ceramic items
Bricks and tiles
Marble slabs
Roofing tiles

Bullish Sentiment MAY Continue...

Expectations of a market-friendly budget and healthy FII inflows so far in the current month is likely to drive the market further. Weakness in the global oil prices may see some action in PSU oil stocks. However, as the market has peaked to record highs since the past few sessions, investors should exercise caution due to inevitable correction.

For the Nifty, the 3052 is a key resistance and a break above this level could see the index test higher levels around 3100. It has an important support at 3020. The Sensex has a crucial support at 10110 and may face stiff resistance at 10240.

A sharp drop in the crude oil prices coupled with lower bond yields helped the US indices register strong gains on Wednesday. While the Dow Jones advanced 68 points at 11137, the Nasdaq gained 20 points to close at 2283. Indian ADRs had a decent outing on the US bourses. ICICI Bank led the pack with gains of over 2% while VSNL and Rediff gained over 1% each. Infosys, Wipro, Tata Motors, MTNL and Patni Computers ended with decent gains. HDFC Bank, however, dropped 4%, while Dr Reddy's and Satyam also closed in the red.

Global crude oil prices dropped yesterday, with the Nymex light crude oil for April delivery falling by $1.73 to close at $61.01 a barrel. The London Brent crude was down 36 cents at $60.08 per barrel. In the commodity space, the Comex gold for April delivery added 20 cents to settle at $556.80 an ounce.

Scrips to watch

Ranbaxy has lost a patent battle to Pfizer in the Finland court and has been barred from selling Atovastatin.

Rumours are that Videocon has held preliminary discussions for a global acquisition of Korea’s Daewoo Electronics.

Bajaj Auto Finance has sold 5% stake amounting to 35 lakh shares on a private placement bais to private equity fund Chrys Capital for Rs40-45 crore.

Aurobindo Pharma has ended its 50:50 joint venture agreement with Citadel Fine Pharmaceutical in Citadel Aurobindo Biotech.