The fortunes of the companies that make up the capital goods/engineering sector are related directly to the magnitude of capital investments made by the government and corporate sector.
As you may have imagined, financing is one of the major factors needed for the growth of this sector as capital investments typically require large investments.
Liquidity, stability, low interest rates, benign credit environment, stability in the financial environment and commodity prices etc. these are some of the aspects of an external environment needed by capital goods companies to flourish.
Unfortunately, in the year just gone by, all these factors suddenly turned against the sector. To the extent that during the December quarter of FY09, most major projects came to a standstill and managements of many of these company's turned extremely pessimistic. But since March of this year, things have begun to look up for this sector once again. Yet, caution can still be felt.
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India Infrastructure Finance Company Ltd. (IIFCL) to evolve a 'take-out' financing scheme in consultation with banks to facilitate incremental lending to infrastructure sector. |
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IIFCL to refinance 60% of commercial bank loans for PPP projects in critical sectors over the next 15 to 18 months. IIFCL and banks are now in a position to support projects involving total investment of Rs 1000 bn. |
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Allocation to National Highways Authority of India (NHAI) for the National Highway Development Programme (NHDP) increased by 23% YoY |
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Urban Infrastructure allocation under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) stepped up by 87% YoY. |
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Provision for the Brihan Mumbai Storm Water Drainage Project to address the problem of flooding in Mumbai, enhanced from Rs 2 bn in interim budget to Rs 5 bn |
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Allocation under Accelerated Power Development and Reform Programme (APDRP) increased by 160% YoY to Rs 21 bn |
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Outlay for defense up from Rs 1,056 bn in FY09 to Rs 1,417 bn in FY10. |
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Customs duty on permanent magnets for PM synchronous generator above 500 KW used in wind operated electricity generators to be reduced from 7.5% to 5%. |
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Customs duty on bio-diesel to be reduced from 7.5% to 2.5%. |
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Bio-diesel, obtained from vegetable oils and used for blending with petro-diesel, is currently exempt from excise duty. Petro-diesel blended with bio-diesel will now be fully exempt from excise duty. Also, there will be a reduction in basic customs duty on bio-diesel from 7.5% to 2.5 % - at par with petro-diesel. |
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Fringe benefit tax (FBT) abolished. |
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Rate of minimum alternate tax (MAT) on book profits has been increased from 10% to 15%, but with a provision of carrying forward the tax credit on MAT to ten years from the current seven years. |
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Facilitation of incremental lending to the infrastructure sector via IIFCL will benefit all project oriented engineering companies catering to this sector. |
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Increase in allocation to NHAI for the NHDP by 23% YoY would benefit engineering companies that execute large scale road projects. |
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Allocation under APDRP which has been increased by a generous 160% YoY will benefit T&D companies. |
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Increase in allocation to NHAI for the NHDP by 23% YoY would benefit engineering companies that execute large scale road projects. |
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The reduction or exemption of excise duty for bio diesel related products will be a positive for engineering companies catering to manufacturing equipment for these sectors. But the same time, the reduction in customs duty on bio-diesel will affect them adversely. |
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Increase in defense allocation to aid prospects of companies providing defense equipments and technologies. |
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Increased allocation under APDRP to support growth of equipment and service providers in the T&D domain like ABB, Siemens, Crompton Greaves, Emco, Bharat Bijlee and Voltamp Transformers. |
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Removal or exemption of excise duty relating to bio fuels to benefit domestic companies like Praj by way of encouraging production of bio-fuels. |
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Increased allocation for large scale road development and defense equipment to benefit L&T. | |
