GST adds fuel to equity rally

Indian equities continue to scale new peaks, defying warnings by pundits of a possible consolidation

Indian equities are likely to continue their upward trajectory with the GST Council making significant headway in making the Goods and Services Tax (GST) a reality in the country. 

The Council met on Thursday and finalised tax rates for 1,211 items with a majority of items being kept at under 18 per cent. Market experts believe this is broadly in line with expectations and may further fuel the market rally in the coming days. 

Goods and services tax (GST) is a system of taxation that seeks to merge many individually applied taxes into a single tax and is a significant step in the reform of indirect taxation in India.

“I don’t think there are no negative surprises in the final GST rate list from a markets perspective as everything was in line with the expectations. In fact, this could be a positive trigger for markets; the tax slabs of some of the essential goods has gone down by as much as 40 per cent. The investor sentiment would also go up as India embraces a single tax code,” said Deven Choksey, managing director, KR Choksey Securities. 

Indian equities continue to scale new peaks, defying warnings by many market pundits of a possible consolidation. The 50-share Nifty scaled the 9,500 peak for the first time in history this week but fell one per cent on Thursday to 9,429 following global cues. 

“Categorisation of several consumer products like soaps, toothpaste and hair oil under 18 per cent is good news and should see prices drop for consumers. Similarly, several food items such as edible oil, tea, coffee and sugar have been kept at five per cent, with exemption for milk and foodgrain, which would also bring cheers for industry,” said Pratik Jain, partner and leader–indirect tax, PwC.  However, he said that 19 per cent items (over 200) would be kept under 28 per cent, which was initially meant for only few commodities such as luxury cars, aerated beverages etc.  

“Most of the items are falling under the 18 per cent rate and the move is not expected to be very inflationary. It’s broadly in line with expectations and evenly balanced. The markets are likely to react positively,” said Rikesh Parikh, vice-president–institution corporate broking, Motilal Oswal Financial Services.