GST implementation will be a market rally disruptor

Published on 31 Mar 2017 by Team

Even though the Parliament has passed key bills that have paved the way for goods and services tax (GST) implementation in the new financial year (FY18), markets remain cautious on how the GST – popularly known as one nation, one tax bill – will impact the economy, and, in turn, earnings of India Inc in the second half of the new financial year (FY18).

In the run-up to the event, most analysts expect the markets to remain choppy as they try to gauge the true impact of GST bill’s implementation amid global risks.

“Passing of the four GST bills in the Lok Sabha is a welcome move. However, considering that the allied rules, rate categorisations, exemptions etc are yet to be finalised, the government should also be mindful of the time that industry would need to smoothly transition into this landmark regime, for which 1 July 2017 deadline seems very tight,” says Krishan Arora, partner, Grant Thornton India.

Vaibhav Sanghavi, co- chief executive officer at Avendus Capital, too, shares a similar view and expects execution-related issues since the time between passing the bill and implementation is too short.  Taxation policies, such as the GST, which have far reaching implications on the economy and corporates, are unprecedented, he says.

“I am slightly cautious towards the implementation of the goods and services (GST) tax bill in July 2017. There can be execution related issues. We need to wait and watch for at least a couple of quarters to see how things work. GST will be a big disruptor and corporates and markets will take time to assess the impact,” Sanghavi cautions.

In the two years it has taken the Nifty50 index to reclaim 9,000 levels, the underlying macro backdrop has undergone a sea change. Demonetisation and GST, analysts say, have been the two most significant macro developments. 

“Together, these two reforms have the potential to alter the investment landscape for several sectors. The obvious consequence of these two reforms is a greater formalisation of the economy and value migration from the unorganised to the organised segment,” says Gautam Duggad, head of research at Motilal Oswal Securities. 

News Source - Business Standard

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