Futures and options players have built long positions in stocks that benefited from the Budget and have gone short on stocks impacted adversely. So, a long build-up was seen in automobiles, banks and infrastructure stocks and a short build-up in the information technology, FMCG, power, refineries and sugar sectors.
The most unfavourable Budget proposal was the increase in minimum alternate tax (MAT), which raised chances of a downward revision in the earnings of some of the index heavyweights such as Reliance Industries, Bharti Airtel, DLF, Reliance Communications and Sun Pharma. For these companies, the effective tax rate would increase to 20 per cent. No wonder, RIL, Bharti and RCom witnessed profit booking and creation of fresh short positions.
However, the two per cent rise in excise duty had a positive impact on automobile stocks with Tata Motors, Ashok Leyland, Maruti Suzuki, Hero Honda and Bajaj Auto rising more than five per cent on Friday, as participants feel the rise in excise duty may not hurt the profitability of auto firms. The stock futures of Mahindra & Mahindra and Hero Honda rose five per cent on long build-up, as analysts expect these two will be benefited from greater agricultural credit flow and the increase in interest subvention to two per cent from one per cent. Allocation of Rs 1.7 lakh crore for infrastructure development and Rs19,894 crore for road development appears to be positive for the commercial vehicle sector, with Tata Motors and Ashok Leyland being key beneficiaries.
| TOP BUDGET BENEFICIARIES | ||||
| Company | March futures | % change in | ||
| Price (Rs) | Open int* | Price | Open int* | |
| IFCI | 51.65 | 84.03 | 8.28 | 1.53 |
| Reliance Cap | 788.5 | 5.18 | 8.1 | 16.68 |
| Tata Motors | 708.6 | 9.91 | 6.2 | 6.89 |
| India Infoline | 114.95 | 8.45 | 5.7 | 2.86 |
| Maruti Suzuki | 1,459.05 | 2.03 | 5.57 | 2.37 |
| Ashok Leyland | 49.65 | 7.26 | 5.53 | -3.43 |
| Hindalco | 161.15 | 23.7 | 5.5 | 19.58 |
| Hero Honda | 1,763.60 | 2.84 | 5.32 | 1.76 |
| Mah & Mah | 1,010.65 | 2.21 | 5.25 | 4.66 |
| IDFC | 160.4 | 14.2 | 5.15 | 17.24 |
| Sesa Goa | 385.95 | 14.71 | 5.01 | 10.17 |
| Reliance Infra | 1,006.95 | 4.32 | 4.72 | 0.04 |
| Suzlon Energy | 71.95 | 55.29 | 4.65 | -1.48 |
| Sterlite Ind | 784 | 3.99 | 4.23 | 4.38 |
| * in million shares March futures prices as on Feb 26 % change over previous day | ||||
The possibility of the Reserve Bank of India giving some additional banking licences to private players and non-banking financial companies (NBFCs) turned positive for Industrial Finance Corporation of India, Industrial Development Finance Corporation (IDFC) and Reliance Capital, who want to enter the banking space. Reliance Capital and IDFC surged more than eight per cent on Budget Day, on strong build-up in open interest by over 17 per cent each. ITC, the cigarettes, hotel and FMCG company, was affected the most on build-up of huge short positions. The ITC March futures declined by over six per cent, while Open Interest (OI) futures rose 52 per cent. ITC’s profits are expected to be hit by six per cent in FY11, as the company needs to increase cigarette prices by six to seven per cent to counter the adverse impact on its profitability per cigarette. The increase of VAT in state budgets is expected to increase the prices of cigarettes further.
Hindalco and Sterlite Industries reported strong up-moves, despite being impacted by rise in excise duty and MAT. The March futures of Hindalco rose 5.5 per cent on a 20 per cent increase in OI, while Sterlite was up by over four per cent on long build-up. The analysts expect exemption of customs duty and special additional duty of customs on gold ore and concentrate would be positive for Hindalco and Sterlite, which produce gold as a byproduct in copper smelting from imported ore.
Cement stocks remained unhurt, despite the rise in excise duty by two percentage points and increase in duty on clinker by Rs 75 per tonne. The derivative players seem to have booked profit in cement stocks, but did not initiate shorts, as they expect cement companies may increase prices as long demand exceeds supply, and may find difficult to pass on the entire hike to end-users in case of oversupply.
