Brokerage views on stocks/sectors to be impacted by Budget 2013

Finance Minister P Chidambaram stuck to fiscal prudence and managed to rein in the runaway fiscal deficit despite political compulsions. He hiked the outlay for infrastructure and other development projects, increased excise on SUVs and imposed a surcharge tax on the super rich.

"Finance Minister Chidambaram maintained his self-imposed 'red lines'. The former is consistent with a sizeable underlying budget squeeze which will have capped GDP growth in the second half of the current fiscal year, while we judge the latter to be fairly easily achieved via a modest additional tightening.

These headline numbers will come as a relief to the rating agencies and RBI, among others," said Credit Suisse in its budget report.

Following are the views of some brokerages on stocks and sectors that are likely to be impacted by the Union Budget:

Goldman Sachs:

We think the increase in the corporate tax surcharge for large companies will have a negative impact on the equity market. Our sector analysts think that the budget will be positive for agriculture (due to interest rate subsidies and higher credit availability for the sector), infrastructure (due to allowing more tax free bonds), financials (due to tax breaks on housing loans) and negative for consumer goods (increase in excise duties for cigarettes) and autos (increase in excise duties for SUVs).

CLSA:

According to the brokerage, the budget proposals have come across as a relief or ITC as feared ad-valorem duty did not come in for cigarettes. Power, media and property get negatively impacted by budget proposals.

ICICI Bank, Axis Bank, Tata Motors, ITC and Zee remain top ideas. CLSA has also added L&T to its top pick ideas after the sharp correction in the stock.
Increase in service taxes and 1 per cent TDS is seen as a negative for property companies.

JP Morgan:

Meltdown in equity markets post budget was due to elevated investor expectations. JP Morgan has maintained its cautious view on Indian equities for 1H CY2013.

According to the brokerage, the hike in surcharge on corporate profits is likely to impact earnings by 1-2 per cent. The rise in taxes for cigarettes and SUVs was in line with expectations.

It is positive on IT services and healthcare sectors, state-owned utilities and high quality financial stocks.

It is of the view that policy window for reforms will progressively get narrow and the FM's targets do look aggressive against the backdrop of macro data.

Bank of America Merrill Lynch:

The brokerage says that the Finance Minister sticking to fiscal deficit targets for FY13, 14 is good news. The market will now focus on the possible rate cut on March 19 policy meet. The tax hike for corporate India is likely to impact EPS by 1.5 per cent.

It is of the view that the market got spooked by worries on FII taxation, and expects a positive clarification from the Finance Minister on DTTA norms. Stock-wise announcement on house loan tax benefits are positive for HDFC and LIC HousingBSE 2.00 %. Its top picks include Maruti, ICIC Bank, Lupin, Tata MotorsBSE 1.50 % and DLF.

Hike in excise duty for SUVs is negative for M&M and rise in import duty of coal is negative for Adani Power and Tata PowerBSE 2.59 %.

Business still hoping for Nov rate cut

BUSINESS groups are still hopeful the central bank will cut the cash rate again in November, despite a bigger than expected jump in inflation. 

 

Retailers took heart from the fact the annual consumer price index at two per cent is at the lower end of the Reserve Bank of Australia's (RBA) target band, even though it jumped 1.4 per cent in the September quarter.

Australian National Retailers Association chief Margy Osmond says there's still room to drop the official interest rate further.

"Retailers will want to see the cash rate continue down before Christmas," she said in a statement.

"The RBA set Christmas off and racing with the cash rate drop at the start of the month. We hope to see the theme continue come Melbourne Cup Day."

The RBA's November board meeting often coincides with the "race that stop a nation".

The Australian Chamber of Commerce and Industry said while the inflation figures were higher than expectations, the broad economic climate, and the conditions on the ground for small and medium enterprises, demanded further consideration be given to a rate reduction.

The chamber's director of economics and industry policy, Greg Evans, said annual underlying inflation - which smooths out volatile price swings - at 2.5 per cent was also consistent with the RBA's forecast by the end of 2012.

"With the outlook for the global economy deteriorating and having prompted a sharp correction in bulk commodity prices, there remains a compelling case for another rate cut," Mr Evans said.

"Sluggish employment growth and the upward trend in the unemployment rate, also highlight the need for additional interest rate relief."

New government data also released on Wednesday showed that job advertisements on the internet tumbled 7.7 per cent in September to their lowest level in nearly seven years.

Source  http://www.theaustralian.com.au/news/breaking-news/business-still-hoping-for-nov-rate-cut/story-fn3dxiwe-1226502567793

RBA concerned dollar may be too high

The Reserve Bank of Australia has admitted the dollar is squeezing the economy harder than expected but that it has limited room to cut interest rates because of the mining investment boom and carbon tax.

In a statement on monetary policy published on Friday, officials at the central bank upgraded their outlook for economic growth and inflation and said the resources investment boom might peak earlier than thought, in 2013-14.

For the first time, the Reserve Bank suggested the dollar might be too high, while pointing to the risks of intervening in the markets to send the dollar lower.

It said the Swiss National Bank, which is defending a currency ceiling, had been forced to sell rising numbers of freshly printed francs, piling up a €130 billion hoard of reserves in three months that were now being swapped for other currencies, including the dollar.

The Reserve Bank acknowledged the dollar was high despite the worsening global backdrop and lower terms of trade – the ratio of import prices to export prices.

“It is possible that the persistently high level of the exchange rate may be more contractionary for the economy than historical relationships suggest,” it said in its quarterly Statement on Monetary Policy.

Over the past two weeks The Australian Financial Review has reported calls by former board members Warwick McKibbin and Adrian Pagan for the bank to drive down the dollar by printing money to sell to foreign central banks.

Central banks in Germany, Kazakhstan, Russia, the Czech Republic, Switzerland, Qatar, Kuwait and Abu Dhabi – as well as technology companies Google, Microsoft and Apple – have purchased almost 77 per cent of Australia’s AAA-rated government bonds.

The dollar traded just above $US1.05 late on Friday after hitting $1.06 during the week, its highest in 4½ months.

Professor McKibbin told the Weekend Financial Review on Friday: “They’re saying that in fact there could be a case where there is actually an overvaluation [in the dollar] and at some point something is probably going to have to be done about it.”

JPMorgan senior economist Stephen Walters said while he doubted the RBA was planning to intervene, its commentary showed the dollar was being closely monitored.

“This is part of the process of maybe trying to get it down. I’m sure there will be a lot of talk over the weekend that at least it’s on their radar – and that can be effective jawboning,” he said.

“There might be a suspicion they’ll do something about it.”

Such a move would potentially drag Australia into the global “currency wars” among countries trying to lower their exchange rates.

The central bank left the official cash rate unchanged on Tuesday for a second month, noting the dollar had remained high despite falls in commodity prices and concern about weaker global growth.

The bank’s economists upgraded their outlook for annual gross domestic product growth in the December quarter to 3.5 per cent from their May prediction of 3 per cent after a surge in household spending that was helped by government handouts.

Treasurer Wayne Swan said the RBA’s assessment highlighted the nation’s “rock-solid economic fundamentals”.

“The RBA has today confirmed our economy is currently travelling along better than expected, with growth upgrades that now have our economy growing at above-trend pace this year.”

Annual underlying inflation is forecast to strengthen to 2.5 per cent in the December quarter, 0.25 of a percentage point higher than was anticipated in May.

The carbon tax, introduced last month, is expected to push underlying measures of inflation to the top half of the bank’s 2 per cent to 3 per cent target range by the middle of next year.

The Reserve Bank warned there was “significant uncertainty” about when second-round effects from the tax would show up in prices.

UBS economist Scott Haslem said the forecasts implied inflation was nearing its weakest pace in the current economic cycle.

“The RBA rarely, if ever, eases policy again when it thinks it’s passed the underlying inflation trough,” Mr Haslem said. 

He expects the cash rate to remain on hold at 3.5 per cent, “possibly for a very long time”.

Reserve Bank officials renewed their warnings about the threat posed by Europe as well as the potential for a faster than anticipated slowdown in China.

Australia’s terms of trade, which have fallen about 10 per cent since their peak in last year’s September quarter, were expected to continue declining gradually.

“But they could fall more quickly if global demand is weaker than expected,” the bank said.

“This would lead to lower growth in domestic incomes, including government revenue, weakening domestic demand.

“Some resources companies have adopted a more cautious approach to investment opportunities currently under consideration (but to which they are not yet committed) given the more uncertain global outlook,” it said.

Resource investment – adjusted for its use of imports – was expected to subtract “modestly” from GDP growth over 2014 after accounting for more than half of the GDP growth in 2011, the bank said.

Officials at the bank said recent low inflation readings were likely to have reflected a combination of margin pressure and better productivity growth.

The central bank said it was too early to be sure the recent gains in productivity growth would endure.

“These developments have been driven by heightened competitive pressure in some parts of the economy but, given the economy overall is still operating close to capacity, such restraints could lessen if there is a material pick-up in sentiment and demand,” it said.

Source  http://afr.com/p/national/economy/rba_concerned_dollar_may_be_too_auATy1SOaEBG15aetqvMVM

Shareholders reject Pacific Brands' pay

SHAREHOLDERS have rejected the remuneration package for the board of clothing and linen producer Pacific Brands.

Results from the company's annual general meeting in Melbourne today show the motion to pass the Pacific Brands remuneration report for the 2010/11 financial was defeated by a shareholder vote.

The poll saw 316.7 million votes cast against the adoption of the report, or 52.9 per cent, and 279.6 million were in favour, or 46.7 per cent.

The remainder of votes abstained.

According to the remuneration report, chief executive Sue Morphet and the company's other senior executives received short-term cash incentives despite performance targets not being met.

Ms Morphet was paid a $910,000 cash bonus, while the chief financial officer received $505,845 and other executives received between $127,000 and $450,00.

Short-term incentives were paid despite the company missing its target of earnings before interest, tax, amortisation and significant items (EBITA) exceeding 90 per cent of its budgeted group EBITA.

Pacific Brands posted a $132 million loss in 2010/11, and an EBITA loss of $58.8 million.

Ms Morphet's total remuneration in 2010/11 was $2.3 million.

Before the shareholder vote on the remuneration report at today's meeting, chairman James MacKenzie responded to pre-submitted concerns about the short term incentives from some shareholders.

The 90 per cent EBITA target, or gate, as Mr MacKenzie described it, was only narrowly missed in the 2010/11 financial year, he said.

The board decided to "open the gate" because of the impact of Kmart's decision to stop stocking Pacific Brands products, plus increased costs, such as cotton prices, he said.

Another factor was the progress of the company's significant restructure announced in 2009, which involved the closure of some Australian manufacturing plants and selling of some brands, Mr MacKenzie said.

"What we should have also emphasised was that the delivery of the transformation program - one year ahead of schedule and despite many thinking it couldn't be done - was a critical consideration in the board's decision to open the gate for the payment of STIs (short term incentives)," Mr MacKenzie said.

"The scale and scope of the transformation should not be underestimated."

The incentives paid were about 60 per cent of the maximum available to the executives, he said.

"It is clear that some stakeholders see the gate as something that, once set, should not be subject to any discretion," Mr MacKenzie said.

"And we hear that concern."

Source http://www.news.com.au/business/shareholders-reject-pacific-brands-pay/story-e6frfm1i-1226176222294

Foster's does not rule out takeover talks with

Foster's new Chief Executive John Pollaers, facing a barrage of questions from analysts and shareholders at a business lunch, defended the board's decision to reject the deal and focus on restoring Foster's share in a declining Australian beer market.

"The value put on the table was so far away from reality that it wasn't worth engaging (with SABMiller)," Pollaers said.

But he added: "We are not saying that we would never engage. Our interest is the shareholders' interest."

Foster's, one of the last big prizes in a consolidating global beer market, has high margins and a 50 percent market share in Australia, where it brews the Victoria Bitter, Crown and Pure Blonde brands.

But it has been losing share as consumers switch from traditional brands to premium and craft beers, and on Friday Foster's launched a new logo, rebranding its main beer business with a minor change in name.

Pollaers said the brewer had the support of shareholders for its strategy of focusing on growing the business and not being distracted by the offer on the table.

But not all agreed.

"I would have thought if anyone approaches, you talk to them because you never know what can come of it," said Craig Young, portfolio manager at Tyndall Investment Management, which owns Foster's shares.

Reporting its first-quarter earnings last week, SABMiller, the maker of Miller Lite, Grolsch and Peroni, kept the market guessing if it will sweeten its bid.

Foster's rejected SABMiller's A$9.5 billion ($10.4 billion) offer last month and refused to enter discussions.

With no other bidders emerging since then, analysts have said SABMiller may be reluctant to bid against itself and could use Foster's upcoming annual results on August 23 to put pressure on the Foster's board to negotiate.

SABMiller said in June it had shown no intention of going hostile, and it expected to engage the Foster's board in further talks.

It offered A$4.90 per share for Foster's, and after trading to a 10-month high of A$5.23, the shares have cooled in the absence of a rival bid to a slim premium over the offer price.

The shares dipped to A$4.98 on Thursday, recovering a bit on Friday to close at A$5.05, up 1.4 percent in a broader market .AXJO down 0.9 percent.

STABILISED MARKET SHARE

Australia's beer market has declined in recent years, as consumers turn to wine and premixed drinks. But Foster's also has a large stable of traditional beers that are losing share to craft brands, and to main rival Kirin's (2503.T) Lion Nathan.

Pollaers said on Friday Foster's has stabilized its market share for the first time in 10 years and expects the beer sector to return to modest growth.

"We believe that once Australia moves through this period of economic uncertainty, the beer category will return to the long-term trend of modest growth," he said.

The past 12 months have been the most volatile the brewer has seen, mostly due to extreme weather conditions, including an unusually cool and wet southern hemisphere summer.

Pollaers took over as chief executive in May, after being the managing director of the beer business where he was the sixth chief in seven years.

"The company line is, Pollaers has to put his head down and he's got to regenerate the beer business and he has to put at the back of his mind the fact that SAB has approached them," said an analyst who declined to be named because he was not authorized to speak to the media.

Still, Pollaers answered questions for nearly half an hour, longer than his formal speech at the business lunch, and nearly all of them on the company's rejection of SABMiller.

Foster's has forecast its beer volumes in the latest six months to June would decline 3-4 percent, a slight improvement from the December half, but severe floods across eastern Australia earlier this year could have further weakened sales.

The brewer rebranded its beer business on Friday with a minor tweak to the brand name.

The beer business will be called Carlton United Brewers, a slight change from the original Carlton & United Breweries, in what Pollaers said was a renewed focus on beer following the split from the wine unit, Treasury Wine Estates (TWE.AX).

Source http://www.reuters.com/article/2011/07/29/us-fosters-idUSTRE76S0QN20110729

Australia indicates rate rise due to curb inflation

Australia's central bank suggested it could raise interest rates again soon as it lifted inflation forecasts for the next two years.

In a quarterly monetary policy statement, the Reserve Bank of Australia on Friday said underlying inflation, which excludes volatile price items, was expected to be around three percent in 2012 -- the top of its target band.

In February, the RBA forecast underlying inflation would remain below 3.0 percent until the end of 2012.

In the latest estimate the bank said it expects prices to rise to 3.25 percent by the end of 2013 as the economy heads toward full employment, wages rise and mining investment surges.

"Further tightening of monetary policy is likely to be required at some point for inflation to remain consistent with the two to three percent medium-term target," the bank said.

It added that the board would "set policy to ensure a continuation of the low and stable inflation that has made an important contribution to Australia?s strong economic performance over the past two decades".

The bank left interest rates on hold at 4.75 percent earlier this week, having last lifted them in November 2010.

"Looking ahead, given the outlooks for both the world and domestic economies, year-end underlying inflation is expected to pick up over the course of 2011," the RBA said.

It said one of the biggest risks was that as mining investment boomed, companies would compete aggressively for labour, leading to more pressure on wages and other costs than the bank initially envisaged.

Australia, the first major western economy to raise interest rates after the global slump, has hiked its cash rate by 175 basis points since October 2009 as it rides the Asia-driven mining boom that helped it dodge recession.

Economist and chief executive of property Group Rismark, Chris Joye, said the RBA could lift rates three times this year to tackle inflation.

"If unemployment holds steady at 4.9 percent and wages growth remains healthy" the RBA is very likely to hike in June, he said.

Source http://www.google.com/hostednews/afp/article/ALeqM5iLiZnJJVnLFu5dy7ilnkIzmd5MXw?docId=CNG.d3307569a9f63532b17cec86e01675f0.831

Shell Plans to Turn Refinery Into Terminal

The Australian arm of Royal Dutch Shell PLC said Tuesday it plans to stop refining at a plant near Sydney and convert the operation into a terminal for fuel imported from around the region.

The relatively small Clyde Refinery can't compete with the "mega-refineries" going up in Asia and elsewhere, which have led to overcapacity in the industry, said Andrew Smith, vice president of Shell Australia's downstream portfolio. He denied the decision had been prompted by government policy or a proposed tax on carbon emissions.

The company will immediately begin consultations with employees, Mr. Smith said; the boards of two local business units then decide whether to convert the terminal, with a decision expected within weeks. He said that if the plans are accepted, the transition would be done by mid-2013, when the refinery had been scheduled for maintenance.

"Clyde is no longer regionally competitive," Mr. Smith said during a conference call with reporters. "The proposal would secure its long-term future."

Shell acquired the 75,000 barrel-a-day refinery in 1928. It currently supplies about 40% of Sydney's petroleum and nearly half of the requirements of New South Wales state, refining crude oil received from the Gore Bay terminal. Shell's other Australian refinery, near Melbourne, can process up to 120,000 barrels of oil a day.

The Clyde operations employ about 310 people, while a typical terminal employs between 30 and 50 people, Mr. Smith said. If the conversion goes ahead, he said, Shell would look to redeploy workers where possible.

Martin Ferguson, minister for resources and energy, said in a statement that Shell's proposal wasn't related to the government's plans to price carbon. "The decision by Shell to examine this proposal has been taken for a range of commercial reasons," he said.

The government plans to start pricing carbon with the aim of cutting emissions and pollution and boosting investment in renewable energy and low-carbon industries from July 2012, subject to the federal parliament's passing the legislation. Details of the plan haven't been finalized.

Source http://online.wsj.com/article/SB10001424052748704529204576257832586113442.html?mod=googlenews_wsj