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Indian Share Market Opens Flat, Pharma Stocks Under Pressure
Fri, 4 Nov 09:30 am

Major Asian stock markets have opened the day on a negative note with the stock market in Japan is trading lower by 1.5%.

Stock markets in Europe and the US too ended their previous session on a negative note with benchmark indices in the UK ending the day lower by 0.8%.

US Presidential election uncertainty is dragging the global markets down.

The rupee is currently trading at 66.7 per US$.

Indian share markets have opened the day on a flattish note. The BSE Sensex is trading marginally lower by 30 points (down 0.1%) and NSE Nifty is trading marginally higher by 7 points (up 0.1%). Both, BSE Mid Cap and BSE Small Cap are trading higher by 0.2% and 0.3% respectively.

Stocks from pharma space are witnessing maximum selling pressure. The S&P BSE Healthcare index is trading down by 3%. Beneath pharma space, Sun pharma is witnessing immense pressure with the stock trading down by 6.1%.The antitrust investigation by the Justice Department of US, was initiated around two years ago on drug pricing. The antitrust investigation was done on two-dozen drugs made by a dozen generic drug companies. The grand jury probe is examining whether some companies agreed together to raise prices, and the first charges could emerge by the end of the year. This could result in charges against various Indian pharma companies that have taken sharp spike in key drugs in the US market.

After a series of discussions it seems like the center and the state have struck a consensus on the tax rate beneath Goods and Service Tax (GST). This essentially means that India has moved closer towards implementation of GST. The government aims to implement GST from 1 April 2017.

The GST council has decided upon a multi-tiered tax rate system. 50% of the items present in the consumer price index (CPI) basket, including food grains such as rice and wheat will attract zero tax rate. By including 50% of the CPI items under zero tax rate, inflation will remain in check.

The next slab will be 5%, wherein items of mass consumption like spices, tea and mustard oil will be taxed. Next will be two standard rates of 12% and 18% wherein a majority of items used by the common man will be taxed.

After that, there would be a higher slab of 28% where items currently attracting a tax of 27-31% will be taxed. Items like white goods and cars will be included in this tax bracket.

Now, the so called demerit and sin goods such as aerated drinks, luxury cars, tobacco and pan masala will also be taxed at 28%. However, on such goods a cess will be levied by the center over and above the 28% slab. Reportedly, the cess will be levied in such a manner that the final tax incidence on such demerit items and sin goods is not less than the existing tax rates. The cess in-turn will be used by the central government to compensate the states for the loss arising out of the transition to GST. The estimated loss to the states is pegged at Rs 500 billion in the first year.

The multi-tiered tax rate structure could possibly complicate GST as it will lead to classification issues. Interpretation issues could arise pertaining to classification, in turn leading to more litigation.

Having said that, GST could be a potential game changer for the economy if implemented in the correct manner. All things considered, it could add another 1-2% to GDP growth every year on a sustainable basis.

In another news update, the Nikkei India Composite Purchasing Managers Index (PMI) - a gauge of private sector activity in the country has reached its highest level since January 2013 in the month of October.

The index, which reflects the activities both in manufacturing and service sector, came in at 55.4 for October 2016. This could essentially mean that a recovery is around the corner led by good monsoon and an increase in consumption.

However, what was also surprising in October month's PMI number is that there are signs of a gradual improvement in investment demand. There was a strong inflow of new work during the month. This in-turn would bode down well with the employment scenario as well. A sustainable improvement in this index will be the key things to watch out for going forward.

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