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Progress on GST to set the trend for equity markets: Analysts


Mumbai: Domestic macro-economic data, coupled with progress on getting the goods and services tax (GST) bill through parliament will determine the trajectory of the equity markets in the week ahead, market observers say.

What will also impact sentiments will be the position taken by foreign investors ahead of an imminent US interest rate hike, reforms and the pace of recovery in the industrial clusters near Chennai after incessant rains.

“We expect markets to remain volatile with a negative bias ahead of the US Federal Reserves (US Fed) meeting mid-month,” Vaibhav Agarwal, vice president and research head with Angel Broking, told a news agency.

The chances of a US interest rate hike were heightened after the US Fed Chairperson Janet Yellen made hawkish comments, indicating a certain hike in interest rates during the mid-December policy review.

On Wednesday, Yallen had said that she is looking forward to a US interest rate hike which will be seen as a testament to the country’s economic recovery.

A US rate hike could potentially lead to a massive pullback of foreign funds from emerging economies like India.

Furthermore, both the equity markets and the rupee are expected to open Monday’s trade weaker as a key US data – the non-farm payroll figures – showed healthy growth in November.

The data showed that the US economy created 211,000 jobs last month against expectations of 200,000.

“Going into the US Fed policy meet, an EM (emerging market) currency like the rupee will remain under pressure against the US dollar, as foreign funds keep exiting the equity markets,” Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told a news agency.

“The FPIs (foreign portfolio investors) have been consistently selling since March this year. They are reallocating funds invested in Indian equities which are increasingly being viewed as over-valued,” hr added.

Selling pressure by the FPIs has dragged the rupee’s value lower.

However, on a week-to-week basis, the rupee gained six paise at 66.70 to a US dollar (December 4) from its previous close of 66.76 (November 27). Nevertheless, the rupee had dipped to a 27-month low of 67.01 on Friday.

The value of the Indian rupee has been dented due to selling spree in the Indian debt and equity markets by foreign funds.

Figures from the National Securities Depository Limited (NSDL) showed that the FPIs sold Rs.3,362.77 crore or $503.32 million in the equity and debt markets from November 30 to December 4.

Data with stock exchanges showed that the FPIs sold stocks worth Rs.3,447.17 crore in the period under review ended December 4.

The FPIs have taken out Rs.23,352 crore in August-September. In November, the foreign investors offloaded stocks worth around Rs.9,000 crore.

On the other hand, the domestic institutional investors (DIIs) bought stocks worth Rs.2,308.29 crore during the just-concluded weekly trade.

Besides global factors, upcoming macro-economic data points like the index of industrial production (IIP) and consumer price index (CPI) will affect investors’ appetite to chase prices.

“Investors will keenly follow the CPI and the IIP data, which are crucial indicators of macro economic trends. The data points assume further significance especially after a below-expected eight core industries (ECI) and purchasing mangers index (PMIs) data,” Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.

The monthly industrial production and retail inflation figures are expected to be released on December 11.

In addition to the macro-economic data, progress or lack of it towards getting the GST bill passed in parliament will be a key trigger going forward, elaborated Pankaj Sharma, head of equities for Equirus Securities.

“Next week, we think the markets would strongly focus more on what stand the opposition parties take on the GST bill and how the winter session progresses,” Sharma told a news agency.

“If both the government and the (principal opposition party) Congress reach a resolution on GST, it will be positive for the markets. Otherwise, we expect the markets to remain range bound next week.”

The government needs to pass the GST bill in this session to meet the April 1, 2016, roll-out deadline, as just parliamentary approval is not sufficient for implementing the pan-India indirect tax regime.

The bill has cleared the Lok Sabha and is now with the Rajya Sabha, where the Congress and other parties have demanded a series of amendments.

The amended bill will be tabled in the Rajya Sabha and if passed, will again have to clear the Lok Sabha. Thereafter, it has to clear half of the 29 state assemblies before it is sent to President Pranab Mukherjee for his assent.

During the previous week, both the bellwether indices of the Indian equity markets ended in the red.

The barometer 30-scrip sensitive index (S&P Sensex) of the Bombay Stock Exchange (BSE) declined by 490.09 points or 1.87 percent to 25,638.11 points from its previous weekly close at 26,128.20 points.

Similarly, the wider 50-scrip Nifty of the National Stock Exchange (NSE) receded during the weekly trade ended December 4. It ended lower by 160.8 points or 2.02 percent to 7,781.90 points.

(IANS, Rohit Vaid)


Next Story

Some Petroleum Products Could be Brought Under GST by New Government

In April, the GST collection had already shot up to record level of Rs 1.13 lakh crore

Petroleum Products, GST, New Government
GST levy on natural gas would help state-run oil companies. Pixabay

At least two out of five petroleum products, including the aviation turbine fuel or ATF and natural gas, are likely to be among the first set of petro products to be included in the GST ahead of an earlier agreed schedule.

Sources said that with Modi government again set to take charge of the government at the Centre, the prospect of two products being included into the GST fold has brightened. The Finance Ministry has started preparing ground for next round of discussions at the GST Council with proposal for taking out gas and ATF from GST first before evolving consensus on other petroleum products.

The Ministry of Petroleum and Natural Gas has already put a request for their inclusion in the indirect tax system and the Finance Ministry could consider placing the proposal in the initial meetings of the Council after the new government takes charge at the Centre.

As part of its efforts to build consensus with states on GST launch, the previous Modi government had decided to exclude five petroleum products viz crude oil, petrol, diesel, ATF and natural gas from the list items placed under GST but included products such as cooking gas, kerosene and naphtha in the new regime.

Petroleum Products, GST, New Government
The Ministry of Petroleum and Natural Gas has already put a request for their inclusion in the indirect tax system. Pixabay

This created a messy situation for companies, as they were required to comply with both the old and new tax regimes. Moreover, tax credits were not transferable between the two systems.

A member of the council had earlier said that though petroleum products were not kept out of the GST, its inclusion in the regular tax system might have to wait at least for a year by when the revenue impact of GST would be better known.

The government hopes that the GST collections would be well over Rs 1 lakh crore mark in all months of FY20 easing pressure on the revenue to bring in next wave of reforms. In April, the GST collection had already shot up to record level of Rs 1.13 lakh crore.

“ATF may be the first among petro product still outside GST. Inclusion of natural gas could be next or may be done simultaneously with ATF,” said government source privy to the development.

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The jet fuel price’s inclusion would allow airlines to take input tax credit on the GST paid thus bringing down the effective cost. Similarly, GST levy on natural gas would help state-run oil companies such as ONGC, IOCL, BPCL and HPCL to save tax burden to the tune of Rs 25,000 crore as they would get credit on taxes paid for inputs and services. Tax credits are not transferable between the two different taxation systems.

Experts said that the ATF price would come down if it is kept in the 18 per cent GST bracket and no other surcharge is levied. The lower fuel cost would mean ticket prices going down for air-travellers. It would benefit corporate travellers the most as they would be able to claim credit on GST paid besides their effective tax rate would also come down. Fuel accounts for nearly 30-40 per cent of an airline’s operating cost.

Petroleum Products, GST, New Government
The government hopes that the GST collections would be well over Rs 1 lakh crore mark. Pixabay

Inclusion of gas would not pose a challenge for the GST Council as it is largely an industrial product where a switch over to new taxation would not be difficult. The revenue implication for the states is also low in the case of this switchover.

Earlier, former Oil and Petroleum Minister Dharmendra Pradhan had also made a strong case for inclusion of natural gas in GST saying that if polluting coal can be included, then the environment-friendly fuel certainly deserves a place in the new regime. He also favoured bringing others petro products under the GST gradually.

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Gas sales, including CNG and piped gas supplies attract VAT ranging from 5-12 per cent. (IANS)