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As the much-awaited tax reform - Goods and Services Tax - looks set to be passed in the Rajya Sabha after a lot of heated debate and uncertainty for a prolonged time, the beneficiaries of GST witnessed profit booking today.
Majority of stocks from beneficiary sectors like two wheelers, passenger cars, batteries, fast moving consumer goods, consumer durables, tiles, plywood, multiplex, paints, sanitaryware, textile, media and logistics fell in the range of 0.5 to 6 per cent today.
Fall in the stock prices could be partly attributed to correction in the global markets, which also had a rub-off effect on Indian benchmark indices. S&P BSE Sensex and Nifty 50 closed down by around 1 per cent. Sensex closed down at 27697.51, below the psychologically important level of 28,000.
The beneficiary stocks had rallied quite a bit (up to 50 per cent) over the last one month or so in anticipation of passage of the bill and also due to strong show by mid and small cap companies following good financial performance in the June 2016 quarter.
Market experts believe the run up in the stock prices of companies benefitting from GST was pretty much factored in by the markets and expect profit booking in such companies to continue for a while until more clarity emerges on the bill.
Delay in implementation of GST and the GST rate are seen as major risks now. Opposition party (Congress) has demanded the GST rate to be capped at 18 per cent and market has factored this into their expectations.
Motilal Oswal, chairman and managing director at Motilal Oswal Financial Services, said one or two per cent here and there won’t make much difference. “This will be the biggest reform in the last 20 years. Markets can correct in the short term, “ he said.
According to Motilal Oswal, Pidilite Industries, Asian Paints, Century Plyboards, Hero MotoCorp, Maruti Suzuki, Amara Raja Batteries, Exide Industries, ACC, PVR, Inox Leisure, Havells, Crompton Greaves Consumer Electricals, Symphony, V-Guard Industries, Dish TV, Shoppers Stop, TCI and Gati are likely to be the gainers while ITC, Titan Company, DB Corp, Jagran Prakashan, HT Media and Ashok Leyland are likely to be losers.
Saurabh Mukherjea, chief executive officer-institutional equities at Ambit Capital sees implementation of GST still atleast a year away and is not gung-ho on the event as there is lack of clarity on which items will be taxed at what rate.
Though he is also confident that GST will benefit in the long term, Mukherjea thinks India will have to face short term challenges like job losses in the unorganized sector, which accounts for major employment in the country.
“Markets have peaked out now and downside (including the beneficiary stocks) will continue as GST benefits will come after two years,” said Daljeet S Kohli, head of research at IndiaNivesh Securities.
Antique stock broking recommends adopting a switch strategy due to fast paced rally in beneficiary stocks and advises to buy ITC, Bajaj Auto, Crompton Greaves Consumer Electricals, Asian Paints, Finolex Industries and VRL Logistics by selling Hindustan Unilever, Maruti Suzuki, Havells India, Titan Company, Century Plyboards and Transport Corporation of India.
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