{LONGTERMINVESTORS} Ambit Insights Feb 25, 2016 (Economy: Union Budget to project a pro-poor image; Retail: The euphoria of 3Q ends with the sale in 4Q)

 

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> Ambit Insights Feb 25, 2016
> (Please see the attached pdf for detailed note)

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> Economy: Union Budget to project a pro-poor image
> Ahead of the Union Budget, our Group CEO, Mr. Ashok Wadhwa gave his views on the likely shape of the budget. The Government seems likely to: (a) use tax benefits to promote its pet schemes such as "Start-up India" and '"Make in India"; (b) increase the holding period required to get CGT exemption for listed securities from 12 months to 36 months; (c) tax the dividends according to the income bracket of the tax payer (rather than at a flat 15%); and (c) reintroduce Estate Duty and Gift Tax. The Government is willing to consider easier permanent establishment rules to encourage FII fund managers to relocate to India. On the indirect tax front, whilst the Service Tax will be raised to ultimately bring it in-line with the GST rate (of 18%), the excise duty rate is unlikely to change. Finally, as mentioned in our 7th January note "Here comes the fiscal slippage", the Government seems likely to compromise on the FY17 budget deficit target of 3.5% of GDP and project a more relaxed target of 3.8%. For obvious reasons, we reiterate our long-standing view that the Sensex is likely to slide to 22K. (Saurabh Mukherjea, CFA,+91 22 3043 3174)
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> ANALYST NOTES:
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> Retail: The euphoria of 3Q ends with the sale in 4Q
> 4QFY16 witnessed one of the longest 'End of Season' sales with the event commencing in late 3QFY16 and ending after eight weeks. This is despite Like to Like (LTL) growth for companies such as Shoppers Stop, Pantaloons and Future Lifestyle fashion crossing over 17% for 3QFY16. The same was primarily due to the bundling of festive season (spread over 2Q & 3Q in FY15), low base, promotions (gross margin reduction) and in some cases closure of retail spaces. The duration of the sale, which was advanced by most companies, clearly indicates that sustainability of the same is weak as consumer sentiment continues to be tepid. We prefer franchises such as Trent that have consistently shown LTL growth driven by own brands and higher full priced sales (sale lasted the usual 4 weeks and commenced later than the previous year). (Abhishek Ranganathan, CFA, +91 22 3043 3085)

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