Stocks: GST Bill To Keep The Momentum Going

Stock markets are expected to remain buoyant as the major tax reform seeking to make a common market in India has been passed in the Rajya Sabha. Stocks will get a further boost as a new Goods and Service Tax could spur the economy into a faster growth rate in the coming years. And in the longer run, this will boost the earnings of companies.

India’s stock markets have been racing ahead ever since the Budget which signaled that the government is committed to the fiscal reform. Stock markets have already inched higher returning over 15 per cent in the last six months, and has all but wiped out its losses over the last year.

Now the latest GST Amendment will add further legs to the rally. Now the markets are expected to wipe out the losses and edge into positive territory over the next few months and expectations of the markets hitting levels of 9000 on the Nifty are gaining currency. Markets could also hit new all-time highs before the calendar year ends.

The GST Amendment Bill is also expected to see increasing activity in logistics sector. Besides, the spotlight is also expected to shine on consumer staple companies like Asian Paints, HUL, Dabur, Marico as these companies are expected to benefit from a new GST regime.

Auto is another sector that will be positively impacted by GST. Maruti has surged nearly 17 per cent the last month over good volume growth, and is expected to see further new all-time highs. The cement sector will also be positively impacted as the current tax levels are at around 27 per cent, which is expected to come down to 18 percent post GST implementation.

Besides, even as the micro-level picture is showing signs of improving, the global markets are also shrugging off the gloomy picture. Over the last few weeks, the US Fed and Japanese central bank’s actions will keep the risk-on trade going on for a while. This is expected to see foreign investors continue to pile up Indian stocks. This week foreign investors purchased stocks worth Rs 1800 crore, and if the trend continues, this year’s foreign inflow levels could surpass many high levels of the previous years.

Besides, the penchant for consumption stocks has not been satiated. The GST Amendment Bill will further boost this consumption story. The buying power of the middle-class that was talked about three years ago is now becoming a reality in the Indian markets. Demand for loans, cars, houses, consumer goods is expected to only increase in the coming years.

One caveat, however. Valuations are stretching at over 23 times earnings. Hence, the markets are not going to be on a tear from here on. But despite occasional corrections, the GST Bill has ensured that the markets will have the positive momentum going for it for a long time to come.