The IBS Times- July 2014

AN ANALYSIS OF THE ECONOMIC SURVEY 2014

BY SHIVAM TANDON

THE IBS TIMES July 2014, Issue No. 168, Volume No. I

A POCKET GUIDE TO THE UNION BUDGET

BY CHAAHAT KHATTAR

HITS AND MISSES OF THE RAIL BUDGET

BY VANIKA SHARMA

THE POWER MEET SPECIAL COVERAGE ON VI BRICS SUMMIT

BY NISHTHA BEHL

FinStreet, IBS Hyderabad

What’s Inside 3

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Bringing Indian Railways Back on Track

Energy and Power

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Pocket Guide to the Union Budget 2014-15

Take on the VI BRICS Summit held at Brazil

The bull run continues

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Highlights of the Economic Survey of India 2014-15

Company in Focus- Alembic Pharmaceuticals Limited

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Letter from the Editor

Industry Overview

Opinion

Analysis

Cover Story

Decode

Market Watch

Vriddhi Research’s Corner

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INTELLIGENCE BEYOND SUCCESS

“The new government’s maiden budget is realistic but it lacks the bold widespread reforms that were expected after the sweeping election victory. We hope this is because the government wants to focus on implementing and consolidating these reforms before introducing any major changes – a sensible strategy.”- Anubhav Mohanty, PwC

Letter from the Editor

THE IBS TIMES Issue Number 168

July 2014 Faculty Mentor Dr. Ravi Kumar Jain

Cover Picture Source: DailyMail

Team IBS Times

Chaahat Khattar (Editor-in-Chief) Akshay Gupta Atharva Solanki

Manisha Mohapatra Nikhil Acharya Nishtha Behl

Dear Readers, Greetings from Team FinStreet !

Thank You for your continuous feedback. It really helps us to keep getting better with every issue. It is a matter of pride for me to share that Team FinStreet completed it’s recruitment procedure earlier this month which for our readers mean many more articles and analysis in the consequent issues of The IBS Times. The month of July gave us a glimpse of the drawing room of the new government and how it plans to to align its strategies with the long term vision it has for the country.

The magazine covers an exhaustive analysis on the Union Budget, The Economic Survey and The Rail Budget which collectively dominated the headlines of the entire month. The Economic Survey on one hand clearly indicated the revival of our economy, the Union Budget on the other had something or the other to offer to both the society and economy but more from long term perspective. In Rail Budget it was expected that government might rollback fare hike announced last month but Rail Budget also focussed more on increasing efficency and bringing it back to profitability. Our Cover Story for this issue is The VI BRICS Summit held at Brazil where the leaders announced formation of a new bank and the Indian Prime Minister clearly took the event as the perfect opportunity to strengthen India’s position on the world diplomacy and decision making map. The magazine also covers industry analysis on the Energy and Power Sector. In the market watch segment, the magazine puts light on the performance of various financial markets in the past month. The magazine includes an exhaustive report from investment point of view on Alembic Pharmaceuticals Limited by Team Vriddhi Research.

Hope you have an enriching experience reading The IBS Times. Your feedbacks and opinions will help us make it better !

Shivam Tandon

Chaahat Khattar Vanika Sharma

" The reality is that business and investment spending are the true leading indicators of the economy and the stock market. If you want to know where the stock market is headed, forget about consumer spending and retail sales figures. Look to business spending, price inflation, interest rates, and productivity gains.”- Mark Skousen 2

Opinion

Rail Budget 2014

Prime Minister Narendra Modi's government disappointed markets with its first major economic policy statement on Tuesday, promising to seek foreign and private funding for the railways but giving no details of how it would lure investors. Investors had harboured expectations for Modi's government to use the railways budget which precedes the full budget by two days to detail widespread reform.

India's state-owned railways are the fourthlargest in the world.

They have suffered from years of low investment and populist policies that have kept fares low. But that has turned a once-mighty system into a slow, badly-congested network that crimps economic growth.

Railway minister DV Sadananda Gowda has the most unenviable task at hand. After he announces the rail budget for 2014-15 on Tuesday, he has one year to put the ramshackle and unprofitable Indian Railways back on track. As he gave final touches to the railway budget on Monday, Gowda smiled at the photo-op, and refused to say if his budget was going to open doors to private players and foreign investors, as largely expected. "The bulk of our

- Vanika Sharma

future projects will be... by the PPP model," Railway Minister Sadananda Gowda told parliament in his first budget, referring to public-private partnerships. The railways cost the government around 300 billion rupees ($5 billion) a year in subsidies and spend 94 percent of revenues on operating costs, leaving next to

nothing for investment. The S&P BSE Sensex broke out of intraday range on the lower side and fell over 300 points; led by losses in power, capital goods, banks and realty sectors.

The market corrected sharply after Railway Minister Sadananda Gowda presented his maiden Railway Budget in the Lok Sabha.

The bad news was already out of the way with the railways announcing a pre-budget hike of 14.2per cent in passenger fares and rising freight rates. Faced with a cash crunch of Rs 26,000 crore, he is believed to have been told by 3

Prime Minister Narendra Modi that the straggling Indian railway network has to compare with the best in the world and come out making profits, not just for its own sake but also for the country.

Railways have the potential of adding at least 1 per cent to the country's GDP. Gowda's "thingsto-do" list is long. He has to run clean trains with improved exteriors and interiors, ensure mechanised cleaning of the coaches and toilets, the stations have to be modernised, old pending projects have to be revisited and scrapped if necessary, run high speed trains, and ensure safety and punctuality at the same time.

"Projects worth Rs50,000 crore are pending, many of them since decades. Railways waste a lot of money in allocating funds for these projects. The money is not enough to complete them and can very well be utilised elsewhere. The focus, therefore, will be to prioritise projects and shelve the ones which may have been announced by former railway ministers as populist measures," said a railway officer in the finance department.

Another railway official claimed that it would not be the usual runof-the-mill budget with a dozens of new trains, lines and projects, most of which never see the light of the day. "Many uneconomic trains like Duronto Express started by Mamata Banerjee - may be used on other routes, where there is a demand," he said. The stress, according to railway officials, would be on taking railways to uncongenial areas and improving connectivity with far-flung areas like the northeast. "A special package is likely to be announced with additional budgetary support for the railways," the official added. Gowda's speech promised to get the railways' finances in order, complete long-delayed projects, seek cabinet approval for a long-standing plan to allow foreign direct investment and jumpstart ambitious plans for highspeed rail. The budget contained

some minor measures, such as a greater use of "mechanized laundries" to eliminate the washing by hand still employed to clean much of the bedding on sleeper trains. But it was short on details of how the wider goals would be met and how Gowda would get foreign companies such as Bombardier and General Electric to invest.

Stocks fell sharply following Gowda's speech, with the Sensex closing down 2 percent after the government dashed investors' hopes for greater spending on the railways, while bond yields rose.

The government revised up planned spending to 654.45 billion Indian rupees for the year ending in March 2015, an increase of 1.8 percent from an interim budget prepared in February by the last government.

It calculates investment in the network through public-private partnerships in 2014/15 to total 60.05 billion rupees, more than in the interim budget, but a fraction of the cash needed to overhaul the network.

Among the highlights of the budget was the proposal to start bullet-train between Mumbai and 4

Ahmedabad. A high-speed train will run at a maximum speed of 320km/h and cover 534km between the two cities in two hours. "The budget gives right signals but disappointed with lack of specifics. Not much was said on upgrading of signal systems. Some specifics on PPP were missing.

Well, the budget gives right signals but disappointed with lack of essentials. Budget is just a statement of intent and government needs more time to work out details. If intent is implemented, it will change the face of Indian railways. The railway budget 2014- 15 is quite practical in focusing on completing ongoing projects, and enabling online tracking of project status. Focus on one bullet train initially, and up-gradation of existing infrastructure for higher speeds on other sectors, is a good balance between affordability and desire. The intention to develop a rational approach to tariff setting, and for determining stops of express trains, is welcome. Some thought seems to have been given on the need for different PPP models (user-charge based, annuities), as well as potential areas for leveraging PPP capability; however, given limited success on station-modernisation projects so far, the implementation roll out remains to be seen.

Industry Overview

Energy and Power

- Manisha Mohapatra

With the change in climatic conditions and the El Nino effect, the rainfall in India has become highly uncertain. The electricity generation from natural gas has not developed much because of limited gas-basins in India. In spite of these challenges India still has the opportunity to generate electricity from solar and wind power. India has a total capacity of 29.4 GW in the renewable energy sector.

Energy is the driving force for any machine whether it is human or a man-made machine. Look around and one finds there is not a single gadget or device that does not run on energy- mobile phones, laptops, microwave, ACs and the list goes on. In the year 2011 world energy consumption stood at 519.23 Quadrillion Btu. In the year 2013, India became the world's third largest producer of electricity surpassing Japan and Russia. As of 2014, she has an installed capacity of 249.488 GW which is 4.8% of the total global electricity generation. The Captive power plants add an additional capacity of 39.375 GW.

SWOT Analysis of Energy sector in India: The energy sector has witnessed mixed news during the current fiscal so far. While crude prices firmed up in the global market, the government's freeze on prices of petro-products affected margins of oil companies.

Strengths: Developing economy: The demand for petroleum products has traced the economic growth of the country. With GDP expected to

The above graph shows that the biggest contributor of electricity in India is thermal power plant. The hydro-electric power plant is one of the cleanest forms of energy but contributes only 17% of the total energy requirements. The reason is because of dependency on rainfall.

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grow at near 7% in the long-term, the energy sector would benefit from the same, going forward.

Government decisions: The recent price increases and also the decision to allow oil companies to increase prices within a band of 10% augur well for the industry.

Weakness: Crude prices: Nearly 70% of India's crude requirements are fulfilled by imports and this figure is likely to increase going forward.

Crude prices have breached the $100 barrier and are likely to remain at around $110 per barrel range.

Lack of freedom: Although the government has decided to provide autonomy to oil companies to increase petrol and diesel prices within a 10% band, other products such as LPG and kerosene continue to remain under the government controlled price mechanism.

Sl no.

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2.

3.

4.

5.

Name of the company Tata Power Reliance Power Adani Power Lanco Infratech SJVN

Sl no.

1.

2.

3.

4.

5.

Name of the company NTPC Power Grid Corp Reliance power NHPC Tata Power

Installed capacity 3 GW 34 GW 19.8 GW 2 GW 1.5 GW Market Capitalisation (Rs Cr.) 130,814.29 75,334.89 30,547.83 30,333.63 28,993.58

Opportunities:

Threats:

Oil: Major oil marketing companies are now venturing into upstream exploration and production activities so as to secure crude supply.

Continuing government interference: During the first six months of the current fiscal year, the oil marketing companies were

Natural Gas: Natural gas has the potential to be the fuel of the future with demand outpacing supply by more than two times.

�Energy conservation is the first step to energy independence�- Tom Allen 6

refrained from increasing product prices due to political reasons.

Analysis

Union Budget 2014

- Chaahat Khattar

The newly elected government presented its first union budget in the backdrop of huge expectations, given the thumping mandate given by the people of India.

narrowed down to 1.7 per cent of GDP and USD 137.5 billion in FY 2014 from 4.7 per cent of GDP and USD 190.3 in FY 2013 respectively.

The Indian economy gained some momentum in Financial Year (FY) 2014 but it just managed to sail through sub 5 per cent growth.

With both Reserve Bank of India (RBI) and the Economic Survey estimating Gross Domestic Product (GDP) growth rate in the range of 5-6 per cent for FY 2015, India is believed to have passed its trough in FY 2013.

The new government will aim at having a stable, consistent and practical policy framework which will include measures to control inflation, boosting investments and reducing fiscal deficit to multiple the momentum of FY 2014 in FY 2015 and expedite economic growth.

Economic Performance: As a result of favorable monsoon, agriculture sector recorded a growth of 4.7 per cent in FY 2014 which was significantly higher than 1.4 per cent in FY 2013. On the other hand, the services and industrial sectors recorded 6.8 per cent and 0.4 per cent in FY 2014 which is marginally lower than previous year.

Stringent monetary policy (to control inflation), dampened business sentiments and lower consumption due to lower government spending (to control fiscal deficit) let to fall in private corporate investment. RBI played a pivot role in controlling depreciation of rupee on one hand and curbing imports on the other.

As a result, the Current Account Deficit (CAD) and trade deficit

Analyzing Key Announcements: It has been the longest slowdown the country has been going through in almost quarter of a century and the budget demanded steps that would lead to revival of growth and curb on borrowings.

The budget has set a fiscal deficit target of 4.1 per cent and 3.6 per cent for FY 2015 and FY 2016 respectively. FY 2014 recorded a fiscal deficit of 4.5 per cent. Fiscal deficit is the difference between the expenditures and revenues of the government (excluding borrowings). The budget talks about a much more targeted subsidy system to reduce the expenditure. Beyond that, the whole system needs a revamp. A reduction in fiscal deficit can be achieved through not only reduction in expenditure but it also requires an increase in revenues.

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The government needs to improve its public distribution system aimed at minimal wastage and effective utilization of available food grains stocks in the country.

Government should also aim at reducing and gradually ending the subsidy raj in the country. Last year close to USD 10.6 billion was paid by the government to compensate sellers of diesel, kerosene and propane cooking gas for selling at a loss and nearly USD 19 billion went toward meeting the difference between the cost of staple foods—rice, wheat and lentils, predominantly—and the artificially low, government-set prices at which they’re sold to poor households at governmentrun shops. An input based subsidy system (giving subsidy at the input level and not in form of distributing cash) and spending more directly on infrastructure will definitely be much more effective way of ensuring a sustainable and inclusive development. Also, the Fiscal Responsibility and Budget Management (FRBM) Act needs to be reviewed to take into account business cycles and to have penalties that are strong enough so that it cannot be ignored.

Also, as mentioned by the Finance Minister in his budget, the country needs to improve tax-GDP ratio.

India’s tax-GDP ratio of around 18 is one of the lowest and steps need to be taken to increase the same. It

is the vast small and medium scale enterprises that are not registered and are not paying taxes, which is where most of the tax collection efforts have to be done and incentives have to be provided so that they do get registered.

Introduction and implementation of Goods and Services Tax can be the step in right direction and if the new government manages to put it in place by year end (as indicated in the budget), it will be sort of a carrot dangling in front of the small and medium scale enterprises and the corporate tax net will significantly broaden.

To boost investments in the country, Finance Minister (FM) also relaxed Foreign Direct Investment limit from 26 per cent to 49 per cent in insurance and defense sector. Experts expect over USD 3 billion capital inflow in the country in the insurance as a result of the increase in FDI limits.

Scotland's Standard Life, France's AXA Group, UK's Lombard, Allianz of France and Italy's Generali could be among those looking to cash in. Also, the cash generated through this FDI might be used to fund infrastructure projects in the country. But, FM has introduced another rider to this. Every FDI must be channeled through Foreign Investment Promotion Board (FDI) which industry experts feel is no less than license raj as FIPB id dominated by civil servants. Also, the budget said, ―full Indian management and control‖ (voting right limitation to

26 per cent only) which is worrying for foreign partners who have invested or planned to invest much more than their share of equity in exchange for management control and the power to appoint chief executives. As far as defense sector is concerned, it is another anticipated and welcome move by the FM. India has been the world’s biggest military equipment purchaser for the last three years and last year alone spent USD 6 billion on buying equipment.

The country manufactures almost no weapons or equipment other than some ballistic missiles but now it intends to shore up its domestic defense manufacturing capabilities to counter the buildup of arms in the neighboring nations China and Pakistan.

On taxation front, as discussed above the highlight was the announcement of implementation of GST by end of the year. Budget also gave a little tweak to tax slabs (same tax slabs for men and women) and extension of 5 per cent withholding tax on corporate bonds until June 30 2017. The government did try to soften the impact of recent rise in rail fare and fuel price by increasing investment limit in Section 80C of the Income Tax Act, 1961. It will definitely encourage more saving and investment by people which will help them save money for their future needs and also increase the overall savings rate. It seemed that FM did not want to hurry up 8

much with the biggest revenue generating source for the government and gave merely hints on introducing necessary changes in retrospective taxes, transfer pricing and real estate investment trusts and infrastructure investment trusts. In order to pave way for GST and consequently the much awaited Direct Taxes Code, all stakeholders right from Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC) must practically chart out plans aiming at consolidation of taxes and increase net base of tax collection.

In a nutshell, the media speculation made us expect a lot from the new government which actually had merely two months in hand to give an outlook of its both short and long term visions. From an individual’s tax saving perspective, it’s a job well done by the FM. FM also did well by not shaking up the framework too much but tweaking the broad structure to make India more investment friendly. The key beneficiaries from this budget will be the entrepreneurs, the overall business sentiments of the nation, banking sector (if consolidation and decontrolling of public sector banks gets underway as promised in the budget) and infrastructure (as a result of the relaxation of cash reserve ratio and statutory lending norms for long-term money from banks).

Cover Story

The VI BRICS Summit 2014, Brazil

The term BRICS was conceived in 2001 by Goldman Sachs economist Jim O'Neill as a catchy way to group together emerging world economic powers. In 2009, leaders of the countries embraced the name and began holding annual summits with an eye on boosting their collective influence globally.

The formation of a BRICS bank, also being called as a New Development bank signals dissatisfaction of the BRICS countries with their position on the global economic stage .

The BRICS group is at the forefront of a growing chorus of emerging and developed nations that complain the IMF and World Bank impose belt-tightening policies on them in exchange for loans while giving them little say in deciding the terms. The BRICS' voting powers at the IMF do not reflect the tremendous rise of their economies, which now make up nearly one fifth of global GDP and

- Nishtha Behl

sustain 40 percent of the world's population.  There is also a long standing complaint from the developing world about who is in charge at the World Bank - and the International  Monetary Fund as well. The system of weighted voting gives the rich countries a very big say. It has enabled them to maintain an informal arrangement which has  meant the Bank always has an American in the top job, while a European has always led the IMF

infrastructure projects Create a "Contingent Reserve Arrangement" worth US$100 billion which will help member countries counteract future financial shocks Mobilise "resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries".

Such a bank could play a strong role in rebalancing the world economy by channelling hardearned savings in emerging markets and developing countries to more productive uses than funding bubbles in

The bank will be called the New Development Bank, not the BRICS bank, which leaves the door open for other emerging ”Our own greater good, however, lies more in nations such as deepening our bonds vertically. This is why I Turkey, Mexico, have spoken on decentralizing this powerful Indonesia and forum in our earlier deliberations. We must Nigeria to join as proactively move beyond being Summitcentric. We must champion Sub-national Level partners at a later exchanges. Champion engagement between date. our States, Cities and other local bodies.

BRICS should in fact, be driven by 'People to Purpose: People' contact. Our Youth in particular must  To provide take a lead in this” – Narendra Modi funding for 9

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

rich-country housing markets The New Development Bank and the reserves fund are a response to failed attempts to increase the BRICS' influence within the IMF at the center of the post-war Bretton Woods monetary order created by the United States and Europe.

Issues: 





Bank’s initial capital and its distribution among them. The bank’s initial capital is widely expected to reach US$50 billion, with each BRICS nation contributing US$10 billion.

The new bank’s first president. Unlike the World Bank and International Monetary Fund, where presidents traditionally belong to Europe or the US, the new BRICS bank will h ave a rotating presidency among the five founding members.

The other decision is related to the headquarters, where

Moscow had also shown interest, but now the race has narrowed down to three capitals, a senior finance ministry official told TOI. Although Delhi is vying for the slot, Johannesburg's chances appear the brightest given that there are concerns over language barrier and freedom of

The BRICS don't want to see a world in which China substitutes the United States as the global hegemon. Brazil and some of the others are very concerned with the rise of China Apart from the BRICS Bank, the leaders will discuss a Contingent Reserve Arrangement (CRA) that will provide a buffer to the five countries in times of a balance of payments problem. It will have an initial subscribed capital of US$ 100 billion, of which India, Brazil and Russia will chip in with $ 18 billion each. China is expected to contribute $41 billion, with the remaining $5 billion coming from South Africa.

The Future of the Bank:

The fact that these nations have come together to form a bank is an important symbol of their rising importance. The group is likely "We must seek urgent reforms of to give a concrete shape to the global institutions of governance like the UN Security Council and formation of its own international financial institutions. development bank, pitching for We must help shape the WTO regime. reforms of the UN Security An open trading regime is critical for Council. India’s journey so far strong, balanced and sustainable has begun on a positive note as it global economic growth. This must address the development aspirations has successfully thwarted of the developing world. It must also China’s hope to dominate accommodate the special needs of the BRICS development bank which weak especially in areas such as all the members are expecting to Food Security" – Narendra Modi launch in coming days. The expression in Shanghai. BRICS Developme nt Bank is Johannesburg comes with the being seen as a counter to western added advantage of being financial institutions, including the World Bank and the International "centrally located" Monetary Fund (IMF).

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The summit will be held on the 15th of July,in which the top agenda of Prime minister Narendra Modi will be to discuss all the issues concerning the BRICS bank

initial capital of around $10 billion, a source close to the discussions told Reuters on Tuesday. The money would be invested in infrastructure projects within the BRICS countries, including the construction of roads, bridges and airports.

Developments at the Summit:

Brazil's President Dilma Rousseff said the New Development Bank will be based in Shanghai and its first president will be from India. It will have a startup capital of $50 billion.

Modi expressed appreciation for Russia's friendship and unstinting bilateral and international support for India's economic development and security since the early days of India's Independence. Modi said he looks forward to working with Putin to further deepen and broadbase the strategic partnership, including in the areas of defence, nuclear energy, space, energy, trade and investment, people-topeople contacts and addressing regional and global challenges; and invited President Vladimir Putin to visit Kudankulam atomic power project during his trip in December.

The new development bank of the group of BRICS countries will be headquartered in Shanghai, China, with the presidency initially held

by India.

The world truly got to see a glimpse of Modi’s vision on trade diplomacy, which he had said would be the defining paradigm in today’s global affairs.

Modi met Xi Jinping and discussed various issues including the need to resolve the boundary question in an amicable manner.

New Delhi, Shanghai, Johannesburg and Moscow are competing to host the first summit, but Shanghai, the financial hub of the world’s second-largest economy, is the widely favoured candidate.

The BRICS Development Bank is expected to start lending in 2016, and by then, its capital should increase from US$50 billion to US$100 billion through further contributions by the founding and possibly new BRICS members, as well as debt emissions, the income from interests on loans.

The new bank will symbolise the growing influence of the BRICS, something that Russia has hoped for after the West imposed sanctions on Moscow in the spring for annexing part of Ukraine and its continued involvement in the country’s crisis.

The leaders on July 15 launched a development bank and a reserve fund worth $100 billion.

There were also tough negotiations over shareholding. China argued that the economic strength of a member nation should be the criteria for contribution to the bank - a higher contribution will automatically mean greater control. But India demanded that each member have an equal share.

BRICS is also considering starting a joint infrastructure fund with 11

Market Watch

Bull Run Continues It has been an interesting 2 weeks for market analysts and stock market experts. The first 10 days leading up to the new Modi led NDA government and the few days thereafter have kept market watchers on their toes with mix reactions and sentiments of the movement of the markets in India and all over the world with keen eyes hearing word of the Finance Minister Mr Arun Jaitley while he delivered his maiden budget on July 10th 2014.

Even though the start of the Budget day the markets surged, the end of day gave a slightly different story with the sensex closing 72 points lower marking a new 2 week low of 25,372.75 and the Nifty closed at 7,567.75, a drop of 17.25 points lower than the previous day. During the Intra-day trading, the sensex swung over 800 points as investors resorted to rapid stints of buying and selling and investors tried to book their profits. Analysts will be pleased to know that the Sensex is up 19.9% year to date.

On 8th July 2014, with the announcement of the Railway Budget, many share prices of companies which cater to the Railways (directly or indirectly) came under pressure despite the government inviting investment from both foreign and domestic players. The big losers were Bartronics, Kalindee Rail Nirman,

- Nikhil Acharya

Commercial Enginerings, Stone India to name a few.

Stocks of real estate companies were among the top performers after the finance minister announced incentives for example that the real estate investment trusts would be given a tax passthrough entity status and the government promised more allocation for affordable housing.

Stocks of DLF increased by 9%, Prestige Estate by 7% and even Indiabulls Real estate increased by 5% to mention a few.

But on the other hand, auto stocks fell when after industry experts predicted that the delayed monsoon was worrisome and that car and utility vehicles sales were only expected to grow marginally during FY2015. The biggest losers were Mahindra and Mahindra Ltd and Maruti Suzuki India Ltd dropping by 2.54% and 2.70% respectively.

With the recent ongoing Iraq crisis, that has controlled global crude oil prices, Many Indian State run oil refiners rose on hope of lower subsidy burden as crude oil prices hit a one month low in the international markets. The biggest gainers were Hindustan petroleum Corporation Ltd with a rise of 2.86%, Indian Oil Corporation Ltd rose 2.9% and Bharat Petroleum Corporation Ltd which gained 2.13%. India imports nearly two 12

thirds of its oil requirements.

Speaking of energy, with the government proposing to cut custom duty on some wind power generation equipment and other incentives for solar power business, some stocks of companies benifted with the good news such as Suzlon Energy Ltd which gained 1.8%. This shows there is a bright future in the sector involved in alternate sources of energy.

Shares in financial companies which have interest in insurance rose after the good news was broken that the FDI cap will be increased to 49% in this sector.

With the Rupee fluctuating against the US Dollar, the Budget did have give some strong signals for the rupee to stabilize. The Rupee has been at an average of 60.58, a marginal improvement since its weakest rate recorded at 63.08 recorded in late January 2014.

Though the budget 2014 has been considered a friendly one, there was a lot of disappointment across the industry because many thought the budget failed to spell out the specifics behind the governments own investment cycle and plan, which indirectly gives others to follow suit.

BSE Top Gainers Security Name

Last Traded Price (Rs.)

BSE Top Losers

Prev. Close (Rs.)

Gain

Infosys

AXIS BANK

1,846.70

1,816.10

30.60

Hero Moto Corp

2,465.00

2,434.75

30.25

TCS

2,424.70

2,398.00

26.70

L&T

1,598.65

1,574.45

24.20

513.95

500.95

13.00

Hindustan Unilevers Dr Reddys Lab Wipro ICICI BANK TATA STEEL

NSE Top Gainers

3,227.00

3,325.80

-98.80

624.00

640.90

-16.90

2,690.00

2,704.95

-14.95

540.45

552.55

-12.10

1,344.30

1,355.60

-11.30

NSE Top Losers

HINDALCO

173.40

166.75

3.99

HCL TECHNOLOGY

1,448.95

1,501.40

-3.49

ASIAN PAINTS

589.50

568.85

3.63

Infosys

3,225.25

3,326.65

-3.05

PNB

900.10

874.50

2.93

Hindustan Unilever

622.95

641.85

-2.94

TATAPOWERCOM

104.80

101.95

2.80

Wipro

538.80

552.85

-2.54

Tata Steel

513.40

501.90

2.29

ACC

1,398.30

1,424.70

-1.85

13

Decode

The Economic Survey of India 2014 Union Finance Minister Arun Jaitely on 9 July 2014 presented Economic Survey of India 2013-14 in the Lok Sabha. This was the first economic survey of the new government led by Prime Minister, Narendra Modi.

India’s economy in financial year 2014-15 is expected to grow in the range of 5.4 – 5.9 percent overcoming sub-5 percent growth.

The Survey listed certain risk factors for the growth and they are poor monsoon, the external environment and the poor investment climate.

The Economic Survey is presented every year, just before the Union Budget and after the Railway Budget. It is an annual document of the Union Ministry of Finance, Government of India and it reviews the developments in the Indian economy of previous 12 months (fiscal year).

It summarizes the performance on major development programmes, and highlights the policy initiatives of the government and the prospects of the economy in the short to medium term.

Highlights: Chapter 1: State of the Economy and Prospects - Economy to grow in the range of 5.4 - 5.9 per cent in 2014-15 overcoming sub-5 percent growth.

-Shivam Tandon

- Growth slowdown was broad based, affecting in particular the industry sector.

- Aided by favourable monsoons, agricultural and allied sector registered a growth of 4.7 per cent in 2013-14.

- Industry and Service sectors also witnessed slowdown.

government spending sustainable limits.

within

- The fiscal outcome of the central government in 2013-14 was achieved despite the macroeconomic challenges of growth slowdown, elevated levels of global crude oil prices, and slow growth of investment.

Chapter 2: Issues and Priorities

Chapter 5: Intermediation

- Reforms needed for long termgrowth prospects on 3 fronts- low and stable inflation regime, tax and expenditure reform and regulatory framework.

- RBI has indentified five sectors infrastructure, iron and steel, textiles, aviation and mining as the stressed sectors.

- Survey suggests removal of restriction on farmers to buy, sell and store their produce to customers across the country and the world.

- Rationalisation of subsidies on inputs such as fertilizer and food is essential.

- Government needs to eventually move towards income support for farmers and poor households.

Chapter 3: Public Finance - The fiscal policy for 2013-14 was calibrated with two-fold objectives; first, to aid growth revival; and second, to reach the FD level targeted for 2013-14.

- The Budget for 2013-14 followed the policy of revenue augmentation and expenditure rationalization to contain 14

Financial

- Public sector banks (PSBs) have high exposures to the 'industry' sector in general and to such 'stressed' sectors in particular.

- The New Pension System (NPS), now National Pension System, introduced for the new recruits who join government service on or after January 2004, represents a major reform of Indian pension arrangements.

- The next wave of infrastructure financing will require a capable bond market.

Chapter 6: Balance of Payments - The India's balance-of-payments position improved dramatically in 2013-14 with current account deficit at US $ 32.4 billion as against US$ 88.2 billion in 201213.

- India's foreign exchange reserves increased from US$ 292.0 billion at end March 2013 to US$ 304.2 billion at end march 2014.

- India's external debt has remained within manageable limits due to the external debt management policy with prudential restrictions on debt varieties of capital inflows.

Chapter 7: International Trade World trade - World trade volume which decelerated to 2.8 per cent in 2012 has shown signs of recovery in 2013, albeit slow with a 3.0 per cent growth.

- The sharp fall in imports and moderate export growth in 201314 resulted in a sharp fall in India's trade deficit to 27.8 per cent.

- In April-May 2014, trade deficit declined to 42.4 per cent.

Chapter 8: Agriculture Food Management

and

- Record food grains and oilseeds production of 264.4 million tonnes (mt) and 32.4 mt is estimated in 2013-14.

- Horticulture production estimated at 265 mt in 2012-13 has exceeded the production of food grains and oilseeds for the first time.

- Due to higher procurement, stocks of food grains in the Central Pool have increased to 69.84 million tonnes as on June 1, 2014.

- The net availability of food grains increased to 229.1 million

tonnes and that of edible oils to 12.7 kg per year in 2013.

Chapter 9: Performance

Industrial

- The latest gross domestic product (GDP) estimates show that industry grew by just 1.0 per cent in 2012-13 and slowed further in 2013-14, posting a modest increase of 0.4 per cent.

Chapter 10: Services Sector - India ranked 12th in terms of services GDP in 2012 among the world's top 15 countries in terms of GDP (at current prices).

- India has the second fastest growing services sector with its CAGR at 9.0 per cent, just below China's 10.9 per cent, during 2001 to 2012.

- In 2013-14, FDI inflows to the services sector (top five sectors including construction) declined sharply by 37.6 per cent to US$ 6.4 billion compared to an overall growth in FDI inflows at 6.1 per cent resulting in the share of the top five services in total FDI falling to nearly one-sixth.

Chapter 11: Infrastructure Communications

Energy, and

- Major sector-wise performance of core industries and infrastructure services during 2013-14 shows a mixed trend.

While the growth in production of power and fertilizers was comparatively higher than in 201213, coal, steel, cement, and 15

refinery production posted comparatively lower growth.

Crude oil and natural gas production declined during 201314.

- The performance of the coal sector in the first two years of the Twelfth Plan has been subdued with domestic production at 556 MT in 2012-13 and 566 MT in 2013-14.

- A total length of 21,787 km of national highways has been completed till March 2014 under various phases of the NHDP. In spite of several constraints due to the economic downturn, the NHAI constructed 2844 km length in 2012-13, its highest ever annual achievement. During 2013-14 a total of 1901 km of road construction was completed.

From the infrastructure development perspective, while important issues like delays in regulatory approvals, problems in land acquisition & rehabilitation, environmental clearances, etc. need immediate attention, time overruns in the implementation of projects continue to be one of the main reasons for underachievement in many of the infrastructure sectors.

Chapter 12: Sustainable Development & Climate Change - Human- induced Greenhouse gas (GHG) emissions are growing and are chiefly responsible for climate change.

Chapter 13: Development

Human

India's Human Development Rank and performance - According to HDR 2013, India has slipped down in HDI with its overall global ranking at 136 (out of the 186 countries) as against 134 (out of 187 countries) as per HDR 2012. It is still in the medium human development category.

- The poverty ratio (based on the MPCE of ` 816 for rural areas and `1000 for urban areas in 2011-12 at all India level), has declined from 37.2 per cent in 2004-05 to 21.9 per cent in 2011-12.

- The world is not on track for limiting increase in global average temperature to below 2?C, above pre-industrial levels.

GHG emissions grew on average 2.2 per cent per year between 2000 and 2010, compared to 1.3 per cent per year between 1970 and 2000.

- There is immense pressure on governments to act through two new agreements on climate change and sustainable development, both of which will be global frameworks for action to be finalized next year.

- The cumulative costs of India's low carbon strategies have been estimated at around USD 834 billion at 2011 prices, between 2010 and 2030.

- In absolute terms, the number of poor declined from 407.1 million in 2004-05 to 269.3 million in 2011-12 with an average annual decline of 2.2 percentage points during 2004-05 to 2011-12.

- During 2004-05 to 2011-12, employment growth [CAGR] was only 0.5 per cent, compared to 2.8 per cent during 1999-2000 to 2004-05 as per usual status.

Our View: Milk production touches a record high of 132.43 mt in 2012-13: India recorded a peak production of milk at 132.43 mt in the year 2012-13, according to the Economic Survey for 2013-14, released in Parliament today.India ranks first in global milk production and accounts for 17 percent of world production.

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India ranks second in world fish production, contributing about 5.4% of global fish production. It is also a major producer of fish through aquaculture. The sector contributes about 1 percent to overall GDP and represents 4.6% of agricultural GDP. India is the second largest producer of fruits and vegetables.The country is the largest producer of mango, banana, coconut, cashew, papaya, and pomegranate; and the largest producer and exporter of spices.India ranks first in the productivity of grapes, banana, cassava, and papaya. India also saw a record food grains, oil seeds and pulses production in the year 2013-14.

India has the second fastest growing services sector with a CAGR of 9%, second only to China. Services constitute a whopping 57 percent share in GDP at factor cost in 2013-14. Also, the size of domestic tourism has also crossed an estimated 1.1 billion annual travel visits.

India's per capita carbon emissions increased from 0.8 metric tons to 1.7 metric tons in 2010, well below the world average of 4.9 metric tons in 2010.

6. India's performance in schooling is even worse than Pakistan.

India's performance in mean years of schooling (4.4 years) is even below that of Bangladesh and Pakistan, which have lower per capita income.

Vriddhi Research’s Corner

Company in Focus- Alembic Pharmaceuticals Industry- Pharmaceutical Market Price- Rs. 336 Target Price- Rs. 375 Market Cap (Rs. Cr.)- 5,779.90 P/E - 26.61 Industry P/E – 26.73 P/C - 22.74 Price/Book – 10.07 Dividend Yield.(%) - 0.74% India is already among the top six producers of pharmaceuticals of the world. The Government of India has announced a host of measures to create a facilitating environment for the Indian pharmaceutical industry.

The policies of the Government of India are aimed at building more hospitals, boosting local access to healthcare, improving the quality of medical training, increasing public expenditure on healthcare to 2-3 per cent of GDP, up from the current level of 1 per cent. The healthcare insurance industry in India is expected to grow at a CAGR of 15 per cent till 2015.

Investments in R&D in India have grown from US$ 52.5 million in 2000 to US$ 646.5 million in 2010. Of this, nearly 80 per cent or US$ 505 million is accounted for by the domestic companies while 20 per cent or US$ 141.5 million comes from foreign companies.

The Government of India has made tax breaks available to the pharmaceutical sector and a weighted tax deduction of 150 per cent for any R&D expenditure

incurred. This is in league with Indian Government's Pharma Vision 2020 which aims at making India a global leader in end-to-end manufacture by 2020. India is home to 10,500 manufacturing units and over 3,000 pharmacy companies. India exports all forms of pharmaceuticals from APIs to formulations, both in modern medicine and traditional Indian medicines. Globally India ranks among the top exporters of formulations by volumes. India's generics exports have been growing at a rate of nearly 24 per cent annually over the last four years. India's pharma exports stood at US$ 14.7 billion in 2012-13, registering a growth rate of 11 per cent. India plans to increase its total exports to US$ 25 billion by 2016.

Key Strengths of the Sector:

-Aditya Sharma

• Growing biotechnology industry.

• Highest quality approvals from USFDA, European Directorate for the Quality of Medicines (EDQM), Medicines and Healthcare Products Regulatory Agency (MHRA) etc.

• Ranks 4th in the world, accounts 8% by volume and 2% by value.

• Very strong in Indian medicine systems of ayurvedic, homeopathy and herbals medicines.

Opportunities in Pharma Sector: • Emerging hub for contract research, Biotechnology, Clinical trials and Clinical data management.

• Licensing deals with MNCs for New Chemical Entities and New Drug Delivery Systems.

• Marketing alliances for MNC products in domestic and international markets.

• Fair protection of intellectual • Enormous potential for property rights supported by well- developing India as a centre for developed judicial system. international clinical trials.

• Strong manufacturing base.

History of Alembic • Drug prices 1/10th of international Pharmaceutical: price and 40 % cheaper to set up Established in 1907, Alembic plants.

Pharmaceuticals Limited is a • 60-70% cheaper for bulk drug leading pharmaceutical company in India. The Company is production. vertically integrated with the • Network of laboratories and R&D ability to develop, manufacture infrastructure. and market pharmaceutical • Highly trained pool of scientists products, pharmaceutical and professionals. substances and Intermediates.

Alembic is the market leader in the 17

Macrolides segment of antiinfective drugs in India. Alembic's manufacturing facilities are located in Vadodara and Baddi in Himachal Pradesh. The plant at Vadodara has the largest fermentation capacity in India. The Panelav facility houses the API and formulation manufacturing (both US FDA approved) plants.

The plant at Baddi, Himachal Pradesh manufactures formulations for the domestic and non-regulated export market. The company has a state of the art Research Centre at Vadodara. The company offers medicines for issues related to Antibiotics & Antibacterial, Cough & Cold, Cardiovascular, Antihistamines, Gynecological, Ortho , Gastrointestinal, Anti Diabetic, Ophthalmological and Urology.

• I see Alembic as a good stock to invest because of its growing Net Profit Margins year by year.

• I recommend to BUY the stock at Rs. 300 level with a target price of Rs. 375.

Mar '12

Mar ‘11

2.00 2.50 12.93

2.00 1.40 11.28

2.00 1.00 28.18

16.33 13.95 13.98 12.85 10.52 35.43 34.24

15.51 12.94 13.05 11.37 8.72 32.04 33.40

13.41 10.79 10.85 9.55 7.01 21.75 32.66

1.29 0.88 0.31

1.17 0.96 0.65

1.23 1.23 1.31

14.60 0.31 14.20

5.08 0.65 5.11

4.76 1.31 4.80

Inventory Turnover Ratio Debtors Turnover Ratio

5.59 7.12

5.73 7.05

5.88 --

Earnings Per Share Book Value

Mar '13 8.35 24.39

Mar '12 6.39 19.14

Mar '11 14.82 45.36

Investment Valuation Ratios

Mar '13

Face Value Dividend Per Share Operating Profit Per Share (Rs)

Profitability Ratios Operating Profit Margin(%) Profit Before Interest And Tax Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Net Profit Margin(%) Return On Capital Employed(%) Return On Net Worth(%)

Liquidity And Solvency Ratios Current Ratio Quick Ratio Debt Equity Ratio

Debt Coverage Ratios Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio Post Tax

Management Efficiency Ratios

Alembic Limited, Yera Glass (Glass Division), Sherno Limited (Engineering Division), Paushak Limited and Alchemy Limited are the group companies of Alembic Pharma.

Final Recommendation: • Their facility for generic business has been now operational in full swing and this specialty segment has been showing healthy growth traction.

• Valuing the company at around 14.5 percent its FY15 earnings estimate, the price target would be around Rs 375.

The Stock has increased at very high level since a year. In October 2013 it was trading around Rs. 116.3 when compared to now at Rs. 335.75.

Company

Market Cap (Rs. in Cr.)

P/E (TTM)

P/BV (TTM)

EV/EBIDTA (x)

ROE (%)

ROCE (%)

D/E (x)

129,677.83

0.00

16.65

112.59

6.6

8.3

0.01

Dr Reddy's Labs

43,638.30

23.72

5.61

14.62

17.5

20.0

0.25

Cipla

32,087.90

23.26

3.62

13.35

18.4

23.4

0.06

Ranbaxy Labs.

19,961.25

0.00

138.12

72.87

0.0

0.0

2.38

Sun Pharma.Inds.

Year End

Dividend Per Share

Dividend (%)

Remark

26-Aug-13

0.2

10.0

Final

21-Jul-10

0.5

25.0

Final

17-Jul-09

0.4

20.0

Final

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