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India's Organised Sector to Prevail from GST; Indian Markets Likely to Open Flat
Tue, 4 Jul Pre-Open

U.S. and European markets kicked off the new quarter with gains as talk about interest rate hikes boosted bank stocks, while the dollar edged up from nine-month lows and U.S. Treasury yields hit their highest in more than eight years.

Oil prices resumed their longest stretch of daily gains in more than five years after data pointed to moderating U.S. crude output; though analysts were skeptical as news of rising OPEC production could cap the rally.

Asian markets opened the trading day mixed with shares in Hong Kong and Japan leading the gains. Meanwhile, stock markets in China opened the trading day in red.

Domestic equity markets are likely to open flat following Nifty futures on the Singapore Stock Exchange. SGX Nifty is presently trading down by 7 points (down 0.07%).

Hero Motocorp share price is expected to be in news today as the company has decided to put a complete halt on royalty payments to its former joint venture partner Honda. Since the termination of the Hero Honda joint venture in end 2010, the company has forked out a total of Rs 3.88 billion to the Honda in annual royalties.

Meanwhile, as per an article in The Economic Times, Tata Chemicals is set to exit fertiliser business by selling off the last of its Indian operations at Haldia, West Bengal, as part of an ongoing mega restructuring that would strengthen the company's focus on consumer and inorganic chemicals and deleverage its balance sheet. Reportedly, Tatas are in advanced negotiations with Indorama Corporation to sell the Haldia unit on a slump sale basis for Rs 6-8 billion.

Spice jet share price is expected to be in limelight as the Delhi High Court today directed budget carrier SpiceJet to deposit Rs 5.79 billion in connection with a share transfer dispute with its previous owner Kalanithi Maran, but provided it some relief by allowing it to deposit the amount in two parts.

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As per a report by ICRA, Indian pharmaceutical industry is likely to witness moderation in growth in the next three years mainly due to decline in revenues from the US, its largest overseas market, and increased competition.

In news from economic sector, the high degree of informality in India has become a matter of public debate since the demonetisation gamble of 8 November. The informal unorganised sector accounts for 40% of India's GDP and a lion's share of total jobs. The informal sector, which thrived on tax arbitrage will yield market share to the formal sector.

However, a market share shift to the organised players from the unorganised space under the GST regime could improve revenue visibility of several companies in sectors where unorganised players capture a fair share of the business.

As per an article in The Economic Times, companies such as Havells, Crompton Greaves, Kajaria Ceramics, Bata, Asian Paints, Pidilite etc. may see better revenue growth thanks to the rising proportion of the organised player in the industry. GST could improve the volume visibility for companies at a time when the demand environment continues to be weak could help them to either maintain their premium valuations.

The organised players will benefit because under GST, there will be a consolidation of warehousing network, higher degree of tax compliance and creation of level playing field between 'express' and traditional transport services through input tax credit.

The availability of the input tax credit will reduce the tax burden for the manufacturers. This availability of input tax could be a major incentive for buyers in the B2B segment for the sourcing from organised players. For instance, a builder and contractor will be incentivised to use branded products as input tax credit will be available for GST on inputs such as tiles, paints, electrical fittings.

Lastly, due to tax compliance, input cost will increase for the unorganised players and help narrow the price gap with the organised players.

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Jul 27, 2017 12:08 PM

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