IT 4,358.58 +2.27%
May 02, 15:46
Post-budget analysis
As expected, the budget proved to be lack lustre for the IT sector. The status quo, pertaining to the taxation of export profits from STPI units post FY09, was maintained. The current sector valuations broadly expect a scenario of effective tax rates for large companies escalating to 18-25% in FY10, due to a gradual shift in SEZs. We believe that a wide universe of mid & small cap cos. might not be able to shift to SEZs. Policy on the FBT structure has not been tweaked significantly & corporate tax structure has been left unchanged. Hence, we continue to have a neutral view on the sector.
Customs duty on specified raw materials and inputs has been lowered while the excise duty on packaged software has been increased from 8% to 12%.
The Budget has yet again maintained its focus on education, in line with expectations, by increasing funds allocation to the sector to Rs.34,400cr up 20% from the earlier allocation of Rs. 28,674cr. The allocation for Sarva Shiksha Abhiyan (SSA) now stands at Rs. 13,100cr.
Other initiatives include provision for scholarships, extension of the Mid-day meal scheme to upper primary, and setting up of institutions for higher learning.
We believe, such education sector reforms are a positive for the sector in the long term since it is an effective way of dealing with problems like talent crunch and wage inflation.
Impact Table
Item Current Status Change in Budget Impact
Extension of tax benefits to IT cos. U/S 10A/10B STP tax incentives to be discontinued post FY09 No change Negative for sector, but valuation have already factored in the possibility
Increased allocation towards education Total allocation of Rs. 28,674 cr. Allocating increased by Rs. 5,726 cr. Positive for education companies catering to government schools & for the IT sector in the long term.
Source - SBICAP Securities Limited
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