Mint Quick Edit | Market buoyancy: Thank GST expectancy

8 months ago 14

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Monday’s share price gains were a refreshing break from the weakness seen in the first half of August. (PTI)

Summary

The PM’s announcement of a GST reform package in the works has cheered investors, with companies selling automobiles and consumer durables seen as top beneficiaries. Market bulls, though, had better be patient.

India’s benchmark BSE Sensex index gained 0.84% on Monday. Investors had ample reason to be cheerful, given Prime Minister Narendra Modi’s 15 August announcement of a GST reform package that is likely to see the rate structure simplified even as distortions are addressed.

Also Read: PM’s speech: Clarity counts as the stakes rise for India

Monday’s share price gains were a refreshing break from the weakness seen in the first half of August, when foreign funds seemed bent on pulling out. The indices of auto and consumer durables companies stood out, gaining 4.3% and 3.1%, respectively. This can be attributed to expectations of a demand boost once the rates of India’s principal indirect tax go down.

Also Read: GST 2.0: A tax reform that could deliver a more competitive India

For small cars, reports suggest a possible GST rate cut to 18% from 28%, while burdensome cesses are likely to end. Small carmakers could get a chance to arrest a market shift in favour of larger vehicles. This explains why shares of Maruti Suzuki jumped 9.1%.

Also Read: CAFE puzzle: Tailpipes must not get to wag India’s car market

That said, investors can’t be blamed for staying skittish. America seems to have shelved trade talks with India and corporate results continue to reveal weak revenue growth, with the scope for further cost compression looking limited. Market bulls may need to show patience.

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