MARKETS SPECTATOR: Retail wrecker

Wayne Swan’s budget’s biggest impact will be on retail stocks, according to Citigroup, and it won’t be good.

“An absence of big pre-election promises tends to lead to weaker retail sales because consumer sentiment dips,” says Citi. “We have a negative outlook on the (retail) sector as we believe sales conditions will remain sluggish, and will be at odds with premium price-earnings ratios.”

The broker has sell ratings on Wesfarmers, Woolworths, Harvey Norman, JB Hi-Fi, David Jones, Myer and Premier.

The lack of fiscal stimulus and a rising carbon tax will make each household $136 worse off in the 2014 financial year as planned increases in family tax assistance are removed, estimated by Citi at $616 million.

Changes in family assistance will impact low and middle-income households with school-aged children, it says. The 0.5 per cent rise in the Medicare levy, from the 2015 financial year, will impact all taxpayers earning more than $20,000, according to Citigroup.

“Value driven retailers, Big W, Kmart and Target, are likely to experience a larger impact from the reduction in stimulus,” says the broker.

The Medical Benefits Scheme changes to indexation elimination of double billing are, according to Citi, “mildly negative” for the shares of Sonic Healthcare and Primary Healthcare.

But the broker expects the two companies “to make cost and revenue responses to offset these changes”. The broker is not making changes to its earnings forecasts or recommendations to the two stocks.