Budget 2013 Special Report Preview

1. Budget- 13 Special Preview Report
- Profit this Budget with wonderful Insights & Key Pre-Budget expectations

2. Content Index
• Broad Stock Market Outlook – Budget 13 to Budget 14.
• Budget’s Core Macro Projections. (HBJ Views on Broad Economy)
• P. Chidambaram’s Expectation Meter + Possible Aces.
• Best Sectors and Themes in Stocks for FY-2014 post Budget.
• TOP 2 Medium Term Stock Picks with Huge Upside Potential.
(Research Reports from our Exclusive Institutional - Bulls Eye Stock Package)
• Impact of Budget on Various Stocks/ Sectors.
(Structural Changes + One-Off positive/ negative Impacts)
• High Impact Stocks to watch out for in this Budget.
“ Specialists in discovering Multibagger stocks “

3. Broad Stock Market Outlook – Budget 13 to Budget 14
Stock Markets – Stock Markets after a strong 2012, has started the new year on a weak note. While the
Headline Indices are slightly negative, the underlying trend amongst Mid-Cap and Small-Cap stocks have
been very weak with several stocks crashing between 20-30%. We believe that Markets are giving us clear
signs of Consolidation and Base building for a strong Multi-Year rally. While we have been writing about this
hypothesis of “Initial days of a Bull Market” for the last 15 months, we believe that our conviction continues
to strengthen with various developments.
We believe with the right noises from the Budget, Markets should get a fillip and resume its uptrend.
With very low participation, we continue to believe in Sir John Templeton’s wisdom of – “Bull markets are
born on pessimism, grown on skepticism, mature on optimism and die on euphoria”. Last Year’s rally didn’t
make Investors confident instead there is huge Skepticism which can be seen from the strong Redemption
pressure across Mutual Funds and Insurance. We believe with the Markets generating good returns going
forward, this Skepticism will slowly turn towards Optimism.
Company level Factors – The sharp slow down in GDP growth from 9.5% to 5% within a few Quarters is
affecting several companies. Especially companies with weaker Pricing power and High Operational
leverage are getting hit hard. Impact on Topline is inline with Growth slowdown but the bigger hit has been
on the Margins. With a slow Economic recovery, we believe it would take some time for companies to get
back to their Ideal Margins. This provides good Investment opportunities in stocks where there is
Operational Leverage with decent Pricing power which will result in gradual Margin improvement leading to
Higher Return ratios and eventually higher Valuations. The time line for this would vary depending on
Growth improvements and Sectoral dynamics.
Secular Bull Market – We believe while the Multi-Year rally is definitely on the cards, a secular Bull Market
requires a few other factors to fall in place. This involves converting the Cyclical Economic recovery into a
Structural one with reforms to deal with High Imports, Large Subsidies and Policy decisions to create a
favorable Business environment. In addition Capital Market boosting reforms to increase the Equity
Allocation of Indians would result in probably a – “Mother of all Bull Markets” over the next decade.
“ Specialists in discovering Multibagger stocks “

4. Broad Core Macro Projections
2009- 2010- 2011- 2012-
Data categories and components Units 2008-09 10(PE) 11(QE) 12(AE) 13(BE) 2013-14(BE)
GDP and Related Indicators
GDP (current market prices) Rs. crore 5630063 6457352 7674148 8912178 10222268 11704497
Growth Rate % 12.9 14.7 18.8 16.1 14.7 14.5
GDP (factor cost 2004-05 prices) Rs. crore 4158676 4507637 4885954 5222027 5535349 5895146
Growth Rate % 6.7 8.4 8.4 6.9 5.6 6.5
Savings Rate % of GDP 32 33.8 32.3 na 31 32
Capital Formation (rate) % of GDP 34.3 36.6 35.1 na 35.96 36.01
Per Capita Net National Income Rs.
(factor cost at current prices) 40775 46117 53331 60972 69508.08 79934.292
Production
Food grains Mn tonnes 234.5 218.1 244.8 250.4 255.4 260.5
Index of Industrial Production(Growth) Per cent 2.5 5.3 8.2 3.6 4.5 5.5
Electricity Generation(Growth) Per cent 2.7 6.1 5.5 9.4 6 7
Prices
Inflation (WPI) (52-week average) % Change 8.1 3.8 9.6 9.1 8.8 8
Inflation CPI (IW) (average) % Change 9.1 12.4 10.4 8.4 9 9
External Sector
Export Growth ( US$) % Change 13.6 -3.5 40.5 23.5 25 27
Import Growth (US$) % Change 20.7 -5 28.2 29.4 27 28
Current Account Balance (CAB)/GDP Per cent -2.3 -2.8 -2.7 -3.6 -4.2 -4.7
Foreign Exchange Reserves US$ Bn. 252 279.1 304.8 292.8 286.9 281.2
Average Exchange Rate US$ Bn. 45.99 47.44 45.56 47.7 50 51
Money and Credit
Broad Money (M3) (annual) % Change 19.3 16.8 16 14.4 15 16
Scheduled Commercial Bank Credit(Growth) % Change 17.5 16.9 21.5 16.4 17 17.5
Fiscal Indicators (Centre)
Gross Fiscal Deficit % of GDP 6 6.5 4.8 4.6 4 4
Revenue Deficit % of GDP 4.5 5.2 3.2 3.4 3.6 3.9
Primary Deficit % of GDP 2.6 3.2 1.8 1.6 1.4 1.2
Population Million 1154 1170 1210 na na na
“ Specialists in discovering Multibagger stocks “

5. Broad Economic Outlook
Macro Economy :- The country’s Macros continues to be weak with a Large Current Account deficit, Sticky
Inflation, High cost of borrowings, deteriorating Savings Rate and a stalled Investment cycle. Our analysis
show that these Variables are much more inter-linked and a few triggers can create a big positive impact in a
short time period. We believe that the trend of deteriorating variables is over with several parameters
bottoming out and slowly the Vicious cycle will turn into a Virtuous cycle along with Positive sentiments.
Interest Rates :- RBI has started reducing Interest Rates with the latest being a 25 Bps cut in January. We
believe with Inflation moderating, RBI has scope for a few more Rate Cuts which will be a positive for
Markets. Currently Interest Payments as % of Revenues is high leading to lower profitability and this can be
reversed with Rate cuts. Also, Interest Rate cuts in itself can reduce the Fiscal deficit considering the fact that
a substantial amount of Government Revenues goes towards Interest Payments and any reduction in
Borrowing costs will benefit the Government.
Fiscal Deficit :- The main focus of this Budget is expected to be revolving around containing Fiscal Deficit. The
Government has shown resolve to take some Hard decisions, but still we need to look for the Quality of
Fiscal Deficit reduction. A lower Fiscal Deficit re-balances the Economy with more Capital being available for
Private Enterprises leading to higher Supply of goods. This is a major reason for Sticky inflation and with
proper Fiscal consolidation, we believe that Inflation will trend lower structurally.
Inflation :- Indian consumer Inflation still remains high and with some of the Suppressed inflation showing
up with Fuel Price de-regulation and Power costs increase, we believe that Inflation will moderate but not
dramatically. But with Fiscal consolidation and demand slowdown, medium term view looks bright. Food
Inflation which is a major contributor will ease only with strong Supply related Policies which can be a
positive surprise in this Budget.
Currency :- High Gold and Crude imports are leading to a large Current account deficit and considering their
in-elastic nature, even a Rupee depreciation will not affect their demand and in fact they would only affect
the Fiscal consolidation in the form of Higher Fuel subsidies. But a Rupee depreciation is required to mitigate
the negative effects of High Land price inflation and boost Exports along with Import substitution.
“ Specialists in discovering Multibagger stocks “

6. Chidambaram’s Expectation Meter + Possible Aces
With the last Budget before elections, we believe Mr. Chidambaram has the tough
act of balancing “Good Politics with Good Economics”. With very little space for
maneuvering along with several pre-Budget decisions taken already, we expect a
stable Budget which will be well received by the Market.
- Kick starting the economy by reviving the Investment cycle and curbing on
spending requires some political will. The gains of these would be reaped only after
next year’s elections, forcing the Government to compromise on the Quality of
Fiscal Consolidation by cutting out politically less-sensitive subsidies. Any positive
surprise here will really take the Markets higher.
- Finance Ministry has already indicated cuts in Defense and NREGA schemes. These
are good starting points for Fiscal Consolidation and increase in Investments from
PSU’s will certainly help in reviving the Investment cycle.
- We must expect a fairly stable Taxation policy with little tinkering and an
aggressive push for getting in GST and DTC reforms as soon as possible.
Problem/ Issue Possible Aces from the Finance Minister
Low Financial savings, Negative Equity allocations. Boost Capital Markets through STT cut, simpler Rajiv
Gandhi Equity scheme.
Real Estate price rise, Housing Shortage, Cyclical Boost housing by increasing Tax Exemption limits and lower
boost to the Economy. Tax for Affordable Housing projects.
Food Inflation, Inclusive Politics, Small Farmer
“ Specialists in discovering
empowerment, Rural Economy boost
MultibaggerAllocation to“
Increased Equity
stocks Farmer groups, Higher
subsidies to boost productivity.

7. Sectors/ Themes post Budget
While Budget as such may not have a structural impact on many sectors, but the holistic Government
policies will certainly affect several sectors. We believe that Taxation reforms will have a huge positive
impact on several sectors including Logistics, Manufacturing etc.
Sectoral Shift :- (Impact on Consumption and Investment Related Stocks)
We believe with the Macro policy turning towards improving Investment cycle and reducing Consumer
related subsidies, we believe that there will be a temporary slowdown in the Consumption stocks while they
will still continue to be leaders of the next Bull Market. Increased Customer taxation along with pruning
down of subsidies (Fuel, Power, Fertilizer) should temporarily halt the growth in discretionary spending.
Oil & Gas Sector :- (Biggest beneficiary of Government policies)
HBJ’s Research team is of the strong view that the biggest beneficiary of Government’s action will be the
Oil & Gas sector which has been subdued over the past several years. While all companies have a benefit,
the biggest beneficiaries will be the Upstream Oil companies on which we will put out a separate report.
Sector PROPOSED IMPACT Stocks/ Companies. Probability
Benefitted
To do away with 5% excise duty on Marginally
LNG Positive GAIL, Petronet LNG Yes
To do away with VAT on LNG & Marginally No - States has
Natural Gas Positive All Oil & Gas companies to agree
Oil & Gas
Benefits U/S 80IA of the Income Marginally ONGC, OIL India, Cairn,
Tax Act Positive IOC,HPCL,BPCL,RIL No
To do away with National calamity Marginally
duty of Rs.50/tonne Positive IOC,HPCL,BPCL Yes

8. Our Special Sample Call from our Highly Successful HNI Package

9. J****D***, H**M** (BUY) – Bulls Eye Call
Maximum Allocation :- 5-7 % Sub – Allocations :
J***D*** :- 3-4 %
Entry : Buying Strategy H**M** :- 2-3 %
1st Phase (Now) of Accumulation :- 70% of Allocation.
Accumulation Range :
These Calls needs to be accumulated slowly and if we are
seeing small dips, Investors can add more. The Second J***D*** = 90-105
phase of buying will be suggested later. H**M** = 85-100
Exit : Selling Strategy Significant Event –
We would intend to exit around Q3-FY 14 (or) at around Elections (State and General)
35% profits from current Buy Levels. We believe that the Strategy –
Returns can be even Higher with a slightly longer Time Build positions before other Market
frame considering Election Schedules. Anyways, exit Participants jump in.
strategy will be communicated to our Clients.
Target Price/ Stop Loss –
Classification Type : Tactical Positioning Call
One Liner on Call :- With a number of Elections coming J***D*** = 135 / 80
up in the next year combined with a cyclical Economic H**M** = 140 / 80
recovery, these Stocks will be the biggest beneficiaries
over the next 2-3 Quarters. Time Frame – 8 to 10 Months (See : Exit)

10. Core Investment Thesis
Tactical Triggers :-
Macro Event :- Elections, RBI Interest rate cuts.
Cyclical Factors :- Economic Recovery, Ad Spend growth, Newsprint Price decline.
Entry Triggers :- Current Mid-Cap correction. Average Prices at >30% discount.
Two Stocks has been selected to get Diversity and also to have one Low Beta & another High Beta play:
English Media – HT Media
Hindi Media – Jagran Prakashan
Long Term Business Quality of these Stocks
J***D*** – Good (High Dividend Yield )
H***M** – Not Good (Play with stricter Stop Losses )
Conclusion : With Markets going through a temporary Correction phase, we would like to take
advantage of it and build positions at lower prices. Markets are still not factoring in the improved Earnings
estimates based on the expected News flow and these stocks will start garnering limelight once the
Election based News flow starts getting heavy. We would like to position ourselves before the Market and
earn superior returns on these stocks. We are also constructive on the Overall Market conditions with the
SENSEX expected to provide decent returns over the next 6-9 Months. We believe that these stocks driven
by higher Interest and better Earnings, will outperform the Markets significantly.

11. Investment Analysis & Rationale

12. Elections Calendar
State Elections in 2013 • Election Calendar is highly back-ended with most Major Elections (Delhi,
Karnataka Rajasthan & Madhya Pradesh) scheduled towards the end of the Year with few
Madhya Pradesh * small states during March and Karnataka in July. In addition to these Elections, we
have in May -2014 : General Elections combined with state Elections to Key states
Delhi * like Maharashtra, Andhra Pradesh etc.
Rajasthan *
• Indian Elections in itself is a Huge Quantitative boost with Huge Spending from all
Chhattisgarh * candidates. We expect this year to be no different and in fact higher spending
Nagaland compared with previous elections.
Tripura • With Political heat increasing through the year, we believe that the Print Media
stocks will be a big beneficiary. There are several benefits of Election Calendar –
Mizoram
Increased focus on XXXXX.
Meghalaya
• In last Election year of 2009, Indian Government is said to have increased its
Jammu and Kashmir Spending by over 20% and informal spending shot up by over 40%. We have also
* - High Impact Elections witnessed this impact on other Media companies like Radios too.
• In last year’s Gujarat Election, ENIL (Radio Mirchi) is set to have raked in Advertising revenue almost equal
to the General elections of 2009 which shows the increasing Ad spending during Elections.
• XXXXX are said to have almost 70% Revenues from Ads and almost 15% Ads are said to be contributed
through Government agencies and any increase will lead to a decent enough growth on its EPS.

13. Sectoral Triggers
• Print Media accounts for almost 50% of the Total Ad spends in this country. In spite of emergence of other
Sample Copy – Only for our Privileged Clients
Media, there is nothing which will match the sheer reach of Print. Hence we believe that the best way to
play revival in Ad spend growth is through Print Media Stocks.
• Advertising which contribute majorly to Revenues has been slightly dull overall the last two years inline
with the overall Economic slowdown. With Interest Rates falling, Government being reformist combined
with lower Inflation will lead to a Economic recovery which will improve Ad spends.
• Major reason for the Margin compression in Print Media stocks over the past 2 years has been the
increasing Newsprint costs. There too, the bigger component of the increase had come from Rupee
depreciation. We believe that with the Rupee stabilizing the Cost pressures would ease resulting in healthy
margins and visibility for these companies.
• There is enough Operational Leverage in the business as improvement in Revenues will lead to significant
improvement in Margins. There is a strong Re-Rating possibility in these stocks.

14. J**D*** – Snapshot (India’s largest M**D)
Sample Copy – Only for our Privileged Clients
• Jagran Prakashan is India’s leading daily with Huge readership of its Flagship – “Dainik Jagran” across the
country. It’s Huge readership base is a delight for any Advertiser.
• Company has been growing both Organically and through acquisitions like its latest – Nai Duniya. With
increasing Rural prosperity and literacy, Jagran has a strong Long Term positioning.
• Jagran has strong Financials with a robust Balance sheet. Since it’s a Capital Light business model, Jagran
continues to have very strong Dividend Payout ratio upwards of 70% and hence a Dividend Yield of > 3.4 %.
• Even in an Economic down cycle, Jagran has been able to post strong Return ratios. Its ROE has been over
20% and we believe in a stronger Economy, its Return on Equity can in fact start inching towards 30%.
Company continues to throws cash and hence even other than this Medium Term Call, the stock is a good
Investment for one’s Portfolio

15. H***M** – Snapshot (Delhi’s largest M**D)
• HT Media is one of the oldest and most Respected Media
houses in this country. It is being run by Mrs. Shobana
Bhartia, one of the scions of Birla family.
• HT Media has been aggressive in the recent times with
launch of several Media properties and aggressive rollout
of new Editions along with entering newer Markets.
• While this has certainly resulted in higher Top line,
Sample Copy – Only for our Privileged Clients
company has been consistently lagging behind its peers in
Margins and Bottom-line performance considering many
of the initiatives are still loss making.
• HT Media has a strong Cash Surplus balance sheet, but
its Returns ratios are poor. It’s ROE is around 10% which
makes sure that the stock trades at a significant discount
to its Peers and deservedly so.
• We believe that considering the long term gestation
period of several of its initiatives, Investors should
continue to look at this Stock from the Event Trigger based
scenario and not as a long term Investment opportunity.

16. Overall View on Bets
• We are providing these Medium Term Investment calls and
considering the fact that there are Multiple Triggers, we believe
Investors can confidently build Strong positions.
• Amongst the two bets given, we have lower Weightage for HT
Media as it is more Risky considering the below average
Fundamentals of the Stock. We are including it for the reason that
it has a Higher Returns potential in an Improved environment.
Sample Copy – Only for our Privileged Clients
• Anyways, we believe that these stocks are Safe bets in a falling
Market as they have clean Corporate governance practices
combined with Strong Balanced Sheet and no Promoter Pledging.
• The Risk comes from the subdued Market conditions and a slow
economic growth continuing for over the next 6 Months, for
which we believe the probability is quite low.
• One of the key reasons for taking this bet so early in spite of
Elections being far off is to be ahead of the market buzz and to
use the current Market correction.

17. Technical View
Jagran Prakashan - “Charts are indicating a very clear Technical Buy, if it breaks 110 Resistance on upside
with Target of around 140”.
Only for our Clients
HT Media – “HT Media charts shows some weakness but we believe it’s a good trade on the Long with clear
Stop Loss at around 80 Rs levels”.

18. Fundamental Earnings View
J****D***
H***M**

19. Our Next Bulls Eye Call is in a stock in the Oil & Gas Sector
where there is a Tactical Call based on few Events and a Stock
which can deliver over 30% returns over the next 4-6 Months.

20. Budget Expectations & Impact
Sector ISSUES PROPOSED IMPACT Proba
bility
To do away with current service
Service Tax on Broadband tax @ 12% Big Positive. No
Service Tax on VST To bring VST on service Tax Negative Yes
Telecom
Benefits under 80IA of the Income
Infrastructure Status Tax Act Positive. No
Promote use of Tablets, Treatment as a perquisite to be
Smart phones done away with Positive. Yes
Benefits U/S 80IA Withdrawal of benefits U/S 80IA Big Negative Yes
Infrastructure
Type of Incentive Investment linked benefits Marginally Positive Yes
Debt restructuring of state A financial support of Rs.1200
discoms crore sought Marginally Positive Yes
Power
Extension for Sunset Clause till
Sunset clause 31st March,2014 Marginally Positive Yes
“ Specialists in discovering Multibagger stocks “

21. Budget Expectations & Impact
Sector ISSUES PROPOSED IMPACT Proba
bility
Increase TDS limit for interest from
Enhancement of TDS limit current Rs.10000 to Rs.25000 Marginally Positive Yes
Incentive for Bond Exemption of Rs.20000 U/S 80CCF
Investments for Infra Bond Investments Marginally Positive No
Banking
Raise funds through tax Permission sought for banks to
free bonds raise funds by issuing tax free bonds Marginally Positive Yes
Lock in period of tax savings
Reduced lock in for tax deposits be reduced to 3 years from
savings deposits current 5 years Marginally Positive Yes
Import duty on Life saving Eliminate import duty on life saving
drugs drugs Marginally Positive High
Pharmaceuticals Increase in weighted tax deduction
on R&D upto 250-300% from current
R&D Expenditure 200% Marginally Positive Low
Reduction in import duty of 2.5%
imposed on iron ore & steel grade
Reduction in Import Duty limestone & dolomite Marginally Positive High
Metals & Mining
Change in guidelines for increasing
PSU Dividends from the current 20%
Dividend Payout of PAT/Equity Marginally Positive High
“ Specialists in discovering Multibagger stocks “

22. Budget Expectations & Impact
Sector ISSUES PROPOSED IMPACT Proba
bility
Reduction in Excise duty from
Duty on Man Made Fibres current 12% to 8% Marginally Positive No
Enhanced service tax Enhance exemption limit from
exemption limit current Rs.10 Lakh to Rs.15 Lakh Marginally Positive No
Textiles
Reduction in service tax Reduce service tax rate from
rate current 12% to 10% Marginally Positive Yes
Lending on par with Lending of export credit to be on
Priority sector par with priority sector Marginally Positive No
IT Reduction in MAT Rate Reduce MAT from 18.5% to 10% Positive Low
Media
Import duty on set top box Lowering of duty on set top box Marginally Positive Low
Import duty on
Capital Goods transmission equipment Extension of levy Marginally Positive High
“ Specialists in discovering Multibagger stocks “

23. High Impact Stocks to watch out for in this Budget
Sample Copy – Only for our Clients
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24. HBJ’s Flagship Multibagger Package

26. THANK YOU
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