Indian stock markets moved sharply higher on Monday, boosted by the rollout of GST amid higher global markets. GST or goods or services tax was rolled out from July 1 in biggest tax reform since Independence. Analysts say that GST, which replaced more than a dozen central and state levies, will boost economic growth over the long term and also improve ease of doing business. "Investors will be closely watching how the GST implementation proceeds," says VK Sharma of HDFC Securities.
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The gains were led by consumer goods makers such as ITC on hopes the newly implemented goods and services tax (GST) would reduce retail prices and boost sales. ITC surged nearly 10 per cent.
"FMCG companies like ITC are going to benefit in the long run from the GST rollout," said Anupam Singhi, chief operating officer at independent research firm William O'Neil India.
Analysts also say that the GST regime has been more or less status quo in terms of taxation on cigarettes, which also boosted the sentiment in cigarette-maker ITC.
The unveiling of GST led some of India's biggest automakers and retailers to announce price cuts. Carmaker Maruti Suzuki India gained nearly 2 per cent after posting a 7.6 per cent jump in June vehicle sales on Saturday. Commercial vehicles maker Ashok Leyland also surged after reporting an 11 percent rise in June total sales.
Shares of fertiliser makers surged after GST rate for fertilisers was slashed to 5 per cent on Friday. Deepak Fertilizers and Gujarat State Fertiliser and Chambal Fertilisers and Chemicals were up between 2-7 per cent.
Analysts say that the GST will help boost GDP or gross domestic product over the long term. Implementation of the GST will be positive for India's rating as it will lead to higher GDP growth and increased tax revenues, Moody's Investors Service said over the weekend. "Over the medium term, we expect that the GST will contribute to productivity gains and higher GDP growth by improving the ease of doing business, unifying the national market and enhancing India's attractiveness as a foreign investment destination," Moody's VP (Sovereign Risk Group) William Foster said.
However, some analysts predict that markets may remain volatile over the short-to-medium term as the Street's looks at the implementation of GST and its impact on corporate earnings.
"We expect some pressure on the companies for next two quarters as companies will try to adjust to the new normal in the economy. During this period, we expect markets to remain volatile and track the management commentary on how they are adjusting to the issues arisen due to the GST," said domestic brokerage Angel Broking in a note. "GST has potential to improve our ease of doing business ranking and add 1-2% growth in GDP growth. Investors should keep watch of this as a successful implementation of GST would lead to strong returns from the equity investments."
Domestic markets also got a boost from strong overseas markets. Most of the Asian stock markets closed higher today while European markets were higher in early trade. Signs of stabilising in China's economy and a recovery in the European economy helped to boost global share prices in the first half of this year. A private sector survey on China's manufacturing showed a surprise recovery in activity, adding to the evidence of steadying growth in the world's second largest economy.
At 1:10 pm, the Sensex was up 286 points at 31,207 while Nifty rose 84 points to 9,605. The breadth of the market was also strong with midcap and smallcap stocks also posting strong gains.
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