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Markets likely to be bumpy on initial GST hiccups

LiveMint logoLiveMint 03-07-2017 Nasrin Sultana

Mumbai: The market is expected to be volatile and remain in the corrective phase this week as disruption due to implementation of goods and services tax (GST) may linger for sometime. India’s biggest tax reform was launched Friday midnight by Prime Minister Narendra Modi. The one-nation-one-tax regime subsumes more than a dozen state and central levies into one tax, unifying 29 states for the first time.

Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services Ltd, said GST may disrupt the system for a few days, may be weeks or months, as people are not yet fully ready for the execution. “Inventory pile up, reconciliation of stock-in-trade and a host of other issues may create a bottleneck for some time. The street will react to the initial disruption, not because it is very severe but more because Nifty is trading at rich levels and pregnant with expectations of better corporate earnings. The Nifty may retrace to 9,200-9,250 levels and will resume next rally from there.”

The markets saw a bumper rally in the first six months of 2017, with the Sensex climbing 16.13% and Nifty rising 16.31%. Broader markets outperformed with the BSE Midcap index rising 21.7%, while BSE Smallcap index rallied 27.93% in the first half of 2017. Analysts believe that the market upmove in the second half will depend on earnings sustainability as valuations are already at the higher end. Teena Virmani, vice-president of research at Kotak Securities Ltd, said Q1FY18 earnings may get impacted due to GST as sales volumes of most manufacturers were disrupted in June due to destocking by dealers.

Sectorally, auto stocks will be in focus this week reacting to sales data in June. Ahead of the GST roll out, sales of domestic passenger vehicle slipped in June from a year ago. According to company data, Maruti Suzuki India Ltd sold 93,057 units during the month against 92,133 units a year ago. Tata Motors’s passenger vehicles sales fell 10% to 11,176 units over the last year. Utility vehicle market leader Mahindra and Mahindra Ltd’s June sales dipped 5% to 16,170 units over last year.

Aviation stocks will also be in focus as public sector oil marketing companies will revise jet fuel prices towards the closing of this month, said Vijay Singhania, founder-director, Trade Smart Online. Aviation turbine fuel or jet fuel constitutes more than 50% of operating cost for airliners. Prices of jet fuel are directly linked to crude oil prices.

On the macroeconomic front, Nikkei Markit Manufacturing PMI data for June will be released on Monday and Nikkei Services PMI will be out on Wednesday.

Global markets will react to US Federal Reserve’s release of the minutes of the Federal Open Market Committee meeting held on 13-14 June. The central bank had increased interest rate for second time this year.

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