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After opening the day weak, share markets in India continued to remain in the negative territory. Sectoral indices are trading on a mixed note with stocks in the FMCG sector and the IT sector leading the losses. While stocks in the realty sector are trading in green.
The BSE Sensex is trading down by 88 points (down 0.3%), and the NSE Nifty is trading down by 32 points (down 0.4%). Meanwhile, the BSE Mid Cap index is trading down by 0.2%, while the BSE Small Cap index is trading flat. The rupee is trading at 66.85 to the US$.
In news about the economy, the maximum rate of tax under the new Goods and Service Tax (GST) regime may go up to 40% after the GST council proposed raising the peak rate in the Bill to 20%, from the current 14%.
The proposed change comes with a view to prevent the need for approaching Parliament for any change in rates in future.
The model Goods and Services Tax Bill will replace the clause which states the tax rate "not exceeding 14%", with "not exceeding 20%" when it comes up for debate in Parliament during the second phase of Budget session beginning next week.
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The change in the peak rate will not alter the 4-slab rate structure of 5, 12, 18 and 28 percent agreed upon last year for the moment, but is only a provision being built into the model law to take care of contingencies in future.
The revised draft of model GST law, which was made public in November 2016, provides for a maximum rate of tax under the new regime at 14% (14% central GST and an equal state GST, taking the total to 28%). If the GST council has its way, the rate will be revised to 20%, taking the total to 40%.
The Centre plans to introduce in Parliament the CGST Bill in the second part of the Budget session beginning March 9. After its approval by the Council, states will introduce the SGST Bill in their respective legislative assemblies.
This will no doubt lead to added costs for implementation of regulations. Unorganized players may bear the brunt of added costs of compliance with the GST norms and thereby lose their competitive position against the well-established organised players.
The implementation of GST is bound to bring more companies under the new tax regime, thus providing a level playing field to organized players in sectors having a high proportion of the unorganized segment.
Moving on to news from stocks in the metal sector. Hindalco share price is in focus today as the company embarked on a fundraising process to raise approximately Rs 33 billion through a qualified institutional placement (QIP).
The Aditya Birla Group firm, which is India's biggest aluminum producer, launched a share sale to institutional investors in what could be the year's biggest equity capital markets offering so far, to take advantage of a liquidity driven market rally.
The company has set the floor price at Rs 184.45 per share for raising funds through QIP issue which opened on 2 March 2017. Bank of America-Merrill Lynch, Citigroup, JM Financial, SBI Capital Markets and Axis Capital are the lead managers to the issue.
QIP is a capital-raising tool, whereby a listed company can issue equity shares, fully and partly convertible debentures, or any securities other than warrants which are convertible to equity shares to a qualified institutional buyer.
The company had last attempted to raise equity capital through a QIP in 2014. The share sale is coming after two and half years when the company postponed its capital raising plans at the last minute in July-August 2014 due to poor market sentiment. The Supreme Court cancelled coal blocks allotted to the company and a downturn in the commodity cycle forced the management to call off the share sale in 2014.
Hindalco will use the proceeds of the transaction to cut burgeoning debt in the company's books. Hindalco's consolidated net debt stands at Rs 555 billion. It's net debt-to EBIDTA ratio is at 4.3 times.
At the time of writing, Hindalco share price was trading up by 1.9%.
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