Nifty Trades on a Flat Note after Touching Record High; Telecom Stocks Witness Buying

Tue, 25 Jul 01:30 pm

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Share markets in India are presently trading marginally lower. Sectoral indices are trading on a mixed note with stocks in the capital goods sector and healthcare sector witnessing maximum selling pressure. Telecom stocks are trading in the green.

The BSE Sensex is trading down 45 points (down 0.1%) and the NSE Nifty is trading down by 14 points (down 0.1%). The BSE Mid Cap index is trading up by 0.4%, while the BSE Small Cap index is trading flat. The rupee is trading at 64.35 to the US$.

In the news from GST space, a proposal to refund central goods and services tax (GST) on items made in formerly excise-free zones in Himachal Pradesh, Uttarakhand and the North-East is set to be presented to cabinet.

Exemptions such as above have been largely scrapped under GST to create a common market across India with fewer interstate variations.

As per the news, the Expenditure Finance Committee (EFC) has approved the above scheme, and the same is likely to benefit companies in the automobile sector, FMCG sector, and pharmaceutical sector that have invested in these zones.

The move is said to benefit companies such as Cipla, Dabur, Dr Reddy's, and TVS Motor that have invested in these areas because of the tax break.

Speaking of GST, the Goods and Services Tax became the order of the day at the start of this month. And all these months we have been subjected to a relentless propaganda by the government and the supporters of the GST, on how it will change our world, only for good.

Our colleague Vivek Kaul, has studied the finer aspects of the GST and predicted what could go right and wrong.

Download his special report - The Good, the Sad and the Terrible (GST).

On the corporate earnings front, the GST implementation is said to impact near term earnings of the companies. However, over a long run, the market expectations are that earnings would normalize. In addition, GST is expected to be a big support to the depressed earnings of the organised listed Indian companies.

If one has to dig a little deeper, there also are some interesting changes visible on the economic front. According to an article by Livemint, the number of registered tax payers under GST till date is set to exceed those in the previous indirect tax regime of value-added-tax etc. Reportedly, around 7.95 million applicants have sought GST registration. That is 99.3% of the 8 million tax base under the earlier system comprising of assesses of state value-added tax (VAT), service tax and central excise duty. This will further boost India's tax revenues, as can be seen from the chart below:

India's Tax Revenues to Get a GST Boost

The implications of the above increase in tax compliance and widening tax base will be a big positive for the economy as well as the government. As we stated in yesterday's edition of The 5 Minute WrapUp...

• Implications of this increase in tax compliance and widening of tax base is clear. India's tax revenues will get a much needed boost in the coming future. This augurs well for the country that has one of the lowest tax revenue as a percentage of GDP compared with other countries. We believe this higher tax revenue receipt will help bolster the country's financials and also provide further ammunition for the government to spend on social welfare and providing additional infrastructure to its citizens. A wider tax base will also allow the government to lower its tax rates in future.

In the news from global financial markets, investors are keeping tabs on the two-day policy review of the US Federal Reserve which is set to begin later today.

Fed policymakers are increasingly split on the outlook for inflation. According to the minutes from the last meeting, several officials wanted to announce a start to the process of reducing the Fed's large portfolio of Treasury bonds and mortgage-backed securities by the end of August.

The Fed, in its last meeting on June 13-14, raised its benchmark interest rate by 25 basis points to 1.25%. This was the third such increase in six months - and a message of confidence from the Fed in the strengthening of the US economy.

US Federal Reserve rate hikes generally have a negative impact on emerging economies. But India is currently seen as better equipped than other emerging markets to ride the impact of higher US interest rates. That's largely because of its stronger economic growth and impressive foreign exchange reserves of more than US$300 billion.

Foreign portfolio investors may not drain funds from India in a knee-jerk reaction to the Fed rate hike, as that would mean missing out on the enormous growth opportunities Indian markets offer.

Most Fed policymakers now think the central bank should take steps to trim its balance sheet later this year as long as the economic data holds up.

However, trimming the balance sheet could tighten financial conditions.

Since 2008, the Fed's swelling balance sheet has propped up the US economy. And it has aided the rally in emerging markets all these years. So any change to the Fed's balance sheet will have an immediate impact on emerging stock markets.

Only time will tell how this all pans out. Meanwhile, we'll keep you posted on the latest developments.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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