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GST coming soon, but don’t expect quick benefits; rich valuation to stall stocks

The Union Cabinet on Monday approved four goods and services tax (GST)-related bills, which have already been approved by the GST Council after detailed discussions. There are expectations that sectors such as logistics, capital goods, auto and pharma will benefit from GST implementation over time. However, market mavens believe implementation of the long-pending bill will take time to benefit investors. With the Cabinet approval to the four bills in place, the GST regime in India is in the final stage of culmination and the GST law will most likely be implemented from July 1. The draft legislations include Central Goods and Services Tax (CGST) Bill 2017, Integrated Goods and Services Tax (IGST) Bill 2017, Union Territory Goods and Services Tax Bill (UTGST) 2017 and Goods and Services Tax (Compensation to the States) Bill 2017. “We will not get a perfect GST on Day 1, and it will take some time to remove the irritants and make it friction-free. Over three to five years, the formal sector will benefit in many areas,” Vetri Subramaniam, Group President of UTI Mutual Fund, told ET in an interview. Nomura Research in a note said, “GST is going to be fiscally neutral in the near term. We expect the impact of the resultant inflation to be minimal at less than 20 basis points and the impact on growth to be marginally negative in the runup to GST implementation. However, over time, we expect elimination of cascading taxes and simplified tax structure to boost productivity, lower costs, aid formalisation of the economy and result in large revenue benefits for the government.” The Nifty50 hit its all-time high level of 9,218 last week as sentiments got a boost after the GST Council cleared crucial legislations, raising hopes that the new indirect tax regime will be rolled out by the second quarter of FY18. However, market experts are looking cautious on further market movement as valuations are not looking favourable for investors. “From a valuation point, the market is not cheap. It is trading in the rich zone and not looking attractive. Midcap and smallcap stocks are pricey compared with largecaps. I would prefer largecaps to smallcaps. Valuations have been a challenge for the better part of last 2-2.5 years. The good news is that Indian investors have given money through SIPs, which averages the impact of valuations, which have come close to average. As an investor, one should stay the course, keep an eye out for opportunities that come on corrections to increase exposures,” said Vetri Subramaniam. “Equity is enjoying its day in the sun, and in comparison looks better. But one must remember that overpaying for equity will eat into returns,” Subramaniam said.

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