Moneycontrol
Jun 30, 2017 11:55 AM IST | Source: Moneycontrol.com

Early Diwali for consumer due to GST and for investors if market correct towards 9000-9250

The long-term investors should be ready with their shopping list if the index does slip towards 9,000 weighed down by GST related concerns.

It is raining discounts for consumers just like days ahead of Diwali, especially on electronics, capital goods, cars as well as two-wheelers to cash on fears related to goods & services tax (GST) in an attempt to offload stocks through discounts.

Right from banks, dealers and companies are offloading their old stock to ensure that the burden does not arise after the next tax regime kicks in from July 1.

Most managers and storekeepers at several retail outlets do not have any idea of how the Goods and Service Tax (GST) — to be effective from midnight—will impact their businesses or product prices, says a report by broking firm Bank of America Merrill Lynch.

Merrill Lynch sees the impact of GST on listed company volumes and earnings extending beyond the June quarter. The note says that the lack of readiness will lead to time and money costs, but these should be temporary.

The global brokerage firm is not alone in assessing the impact on companies. Most experts which we have spoken to said that the GST will lead to short-term disruptions in the near term which could take lead to delay in earnings recovery and probably push it by another two-quarters.

The last 12-18 months was all about PE expansion and if the earnings get delayed there could be a possibility that the index could slip towards 9200 levels and that will be a great level to enter markets.

The long-term investors should be ready with their shopping list if the index does slip towards 9,000 weighed down by GST related concerns.

“GST, the biggest indirect tax reform in independent India, is associated with a lot of noise these days, some good some bad. When we look at this reform, it may disrupt the system for few days, may be weeks or months as people are not yet fully ready for the execution,” Motilal Oswal, CMD at MOFSL told Moneycontrol.

“Inventory pile up, reconciliation of stock-in-trade and a host of other issues may create a bottle neck for some time. The Street will react to the initial disruption, not because it is very severe but more because Nifty is trading at rich levels and pregnant with expectations of better corporate earnings,” he said.

Oswal further added that Nifty may retrace to 9,200-9,250 levels and will resume the next rally from there. One should be ready to deploy more money in equity instruments at lower levels.

The market which went in one straight line after hitting a low of 7900 back in December 2016 did not give the opportunity to investors to enter markets and many are still waiting on sidelines awaiting a big fall.

The risk to reward ratio will become favourable for investors if Nifty dips towards 9000, say, experts. But, every dip is a buying opportunity and long-term investors should deploy some cash at each meaningful dip.

"GST would be one of the hooks that the market will justify for correction to set in. Investors should wait for a while till the time market corrects its lofty valuations. The rally since the last week of December 2016 hasn’t had a meaning full correction," Jimeet Modi, CEO, SAMCO Securities told Moneycontrol.

"Ideally a correction of 38 percent would take Nifty 50 back to 9000 levels, that’s the time when investors should go out and add to their basket of quality stocks, but not now," he said.

GST implementation is the major uncertainty driving investors to book profits for the time being, as most of the companies are seeing reduced business activity over the past few weeks, suggest experts.

The Nifty has already corrected by over 200 points after hitting a record high of 9,709 earlier in the month of June weighed down largely by GST related concerns.

“GST is also expected to be inflationary for the economy in the first few quarters, which is also playing on investors’ decision-making. Hence, we are seeing profit booking and exits from a wide range of stocks, especially for companies which had moved sharply higher,” Nikhil Khandelwal, MD, Systematix shares told Moneycontrol.

What should investors do?

The market has already upsurge by 16 percent in the current fiscal year thus limiting the upper movement in short-run, but there will be stock specific opportunities.

A much-needed correction after months of the rally in the market on the backdrop of GST implication is a healthy sign for an investor to partake in the market.

“The medium to a long-term story of the market is currently at the positive curve. As GST regime develops over a period of time, the stable crude price and control over the domestic inflation in current fiscal year, is expected to deliver a stronger growth from the next coming quarters to boost the market by 20-23 per cent in this fiscal year,” Dinesh Rohira, Founder & CEO of 5nance.com told Moneycontrol.

GST in the long term shall be boon for product segments where the unorganised sector is dominant. Building materials such as ceramic tiles, ready mix concrete, plywood, Sanitaryware and many other such product segments could be potential beneficiaries.

“Tax compliance for companies generating over Rs 20 lakh revenues shall reduce the competitiveness of the unorganized sector,” Shashank Khade, Chief Equity Advisor and Co-Founder, Entrust Family Office Investment Advisors told Moneycontrol.

“We believe it shall emerge as a large investment theme and stock picking is advisable on a case by case basis,” he said.
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