Dubai:
Among others, investors are one class of people who are happy with the implementation of Good and Services Tax (GST).
Fund managers are busy trying to find out companies which will stand to get impacted from the new legislation, touted to be a big reform since independence.
All this while, the news on implementation of the Good and Services Tax provided underlying positive support to the market, which has been conquering new peaks.
GST intends to dismantle inter-state barriers to trade in goods and services, and would be far simpler than the current system, where a good is taxed multiple times at different rates.
The GST will replace at least 17 state and federal levies, making the movement of goods faster and cheaper across a market holding 1.3 billion consumers.
Franklin Templeton expects the tax compliant companies to benefit more.
“We will expect companies to benefit as they are tax compliant and follow high quality governance standards. We expect these companies to benefit and improve their market positions, as the non-tax compliant companies will find it very difficult to operate and survive,” Sukumar Rajah, Managing Director and Chief Investment Officer — Asian Equity, Local Asset Management, Franklin Templeton Investments told Gulf News over the phone from Singapore.
He expects large scale businesses to be winners due to the implementation of GST.
Due to higher compliance among corporates, Rajah expects government deficits would reduce, and that would have positive impact on interest rates.
Domestic currency:
Dr Sean Chang, head of Asian debt investment — Baring Asset Management (Hong Kong) expects support to the domestic currency among other benefits.
“Single regime indirect taxation system in India could benefit domestic trade and economic activities. India tax processes should be more straight forward and that should improve from the cumbersome tax policy mechanism of the past. We expect the future effects are positive in those fostering economic activities,” Chang said.
“That should also indirectly supportive to the domestic currency in general assuming other factors constant,” Chang added.
Currently, the Indian rupee reversed its record weakness and has been on a strong footing compared to the US dollar.
Inflation:
Fund managers have their own doubt on the impact on inflation.
“It is very difficult to point out the impact of GST on inflation. The second is pricing power of the industry itself. Earlier the industry margins were contracting. The final finished product prices they didn’t have pricing power due to low capacity utilisation. But as capacity utilisation increases, pricing power would improve,” Rajah said.
“There are many moving parts so its difficult to take a stance on inflation. We don’t have an active view and there is nothing to be gained for someone like us whose alpha is generated by stock selection, and not so much by top down view,” he added.
But overall, the GST is expected to add to an already long list of positives on Indian markets.
“We believe that GST is more a sentiment booster especially in the short term as the positives of it will take a couple of years to manifest, at the very least,”
Ajay Argal, Head of Indian Equities at Baring Asset Management (Hong Kong) said recently.
Box: Companies that stand to benefit:
The GST implementation is expected to benefit the automobile industry. The cost for inter-state transfer will come down as it will surpass the various octroi and check points. This will also positively impact the logistics cost and drive demand.
Most of the paint and cement makers will save on their supply chain and carrying costs. The overall taxation will be also lower, which could lead to volume increase and margin expansion.
