Equity analysts’ takeaway from the budget

The recently proposed budget has drawn a mixed reaction from the economists and experts. Stock market investors and equity analysts here are also making observations about the government's proposals.

Along with the macro economic analysis, they are also busy in calculating how the ins and outs of the proposed fiscal changes would impact the growth and profitability of different sectors and some specific companies.

The Business Standard has seen some of the research notes prepared by top brokerage or investment firms including Brac EPL, LankaBangla, EBL, UCB Capital, City Bank Capital, and United Securities which have dedicated research teams.

One of the topics most discussed by the researchers is the offered opportunity to allow undisclosed money into the capital market.

According to the majority of the investment researchers, this opportunity is not likely to attract a lot of investments in stocks as the government imposed a three-year lock-in on capital market investment. The investors may prefer safer options like real estate, savings certificates, and bank deposits, where they can withdraw funds anytime they want to.

"It (proposed money whitening scheme) may not be the silver bullet to fix the anaemic liquidity in the market," said researchers at United Securities Ltd.

However, if the economy and market can return to a somewhat normal working situation, there may be a fund injection into the market over the next 12 months as the average price to earnings ratio is low enough, hopes the brokerage firm.

The proposed duty and tax measures can positively impact the business of poultry feed manufacturers like Aman Feeds and National Feed Mills, agro machinery marketers like ACI Motors, and companies selling or using agro commodities as raw materials like ACI, AMCL Pran, Bangas, Golden Harvest, Olympic.

Advanced tax reduction by 1 percentage point against raw material imports would benefit over 150 local manufacturing companies.

In the proposed budget, export tax is reduced from 1 percent to 0.5 percent to benefit all the exporter firms other than the ones in the readymade garments sector.

The garments exporters are paying the tax at 0.25 percent tax now and government proposed to make it 0.5 percent for all.

The proposed budget includes some good news for steelmakers like BSRM, GPH, RSRM, SS Steel, only if they procure scrap from local sources as at source tax there comes down from 0.5 percent to 0.05 percent. Currently, the companies mostly rely on imported raw materials. 

The equity analysts also have sorted out some negative points for listed companies. Ceramic sink, basin etc manufacturers would take the shock of 10 percent supplementary duty in the manufacturing stage.

Increase of excise duty on bank balance would impact all 30 listed banks' deposit collection.

Supplementary duty increase on telecom services would cost Grameenphone customers more, hence might impact its business to some extent. The same on cigarettes would impact British American Tobacco Bangladesh too. However, these two companies have a long track record of successfully retaining customers even after passing on the increased costs to customers themselves.

EBL Securities has concluded that the budget proposal is positive for paper and tissue manufacturers, pharmaceuticals, fuel and energy, textiles, and food and allied sectors; neutral for lenders, engineering firms, tannery and tobacco; and negative for construction, power and telecom sectors.

Brac EPL noted that duty measures would benefit manufacturers of refrigerator and air conditioner compressors like Walton and lubricating oil plants like Eastern Lubricant.

Footwear manufacturers like Bata Shoe and Apex will be benefited because of the duty reduction plan for three imported raw materials.