All eyes on GST: Top 16 stocks to bet upon

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The benefits of GST are immense in terms of reducing economic distortions, creating a nationwide single tax market, widening of tax base and eliminating cascading of taxes (tax on tax).
According to market experts, GST aims to simplify the current indirect tax regime by bringing all central and state levies (like excise duty, sales tax, octroi, VAT and other countervailing duties) under one single head having uniform tax rate across goods and services (with some exclusions like electricity, alcohol and petroleum products).

 

Benchmark indices extended gains last week and closed 1 per cent up following positive global cues and hopes of smooth passage of the Goods and Services Tax (GST) bill in the ongoing Winter session of the Parliament.

During the previous week ended November 27, 2015, Sensex gained 259.71 points to 26,128.20 on November 27, while Nifty gained 86.15 points at 7,942.70.

GST aims to simplify the current indirect tax regime by bringing all central and state levies (like excise duty, sales tax, octroi, VAT and other countervailing duties) under one single head having uniform tax rate across goods and services (with some exclusions like electricity, alcohol and petroleum products).

In response to favourable outcome related to GST in the ongoing Parliament session some positive statements were made by the government representatives and the same were supported by some opposition parties also. According to reports, government is hopeful of passage of the GST bill in the Winter session of the Parliament as it claims 30 of the 32 parties have supported it. GST will be in focus this week after Prime Minister Narendra Modi met OppositionCongress party leader Sonia Gandhi for talks last week to try and break a deadlock over the new indirect tax.

Jayant Manglik, president, retail distribution, Religare Securities, said, “If the bill doesn’t get passed in the winter session, the government will miss the 1 April roll-out date and that will certainly dent the sentiments.”

The benefits of GST are immense in terms of reducing economic distortions, creating a nationwide single tax market, widening of tax base and eliminating cascading of taxes (tax on tax).

However, Chandan Taparia, analyst, Anand Rathi securities said, “In Rajya Sabha 1/3 members retire by every 2 years, so if the bill will not clear in the ongoing session then it will delay till 2017.”

For manufacturing companies, it means level playing field for organised and unorganised sectors, and cost optimisation in terms of movement and warehousing of goods due to uniform tax rate. Consequently, it would have positive fallout on inflation, curtailing tax avoidance and creating buoyancy in the economy.

According to estimates, the implementation of GST could bring in incremental positive effect of 1-1.5 per cent in the GDP depending upon the GST rate (likely range of 18-20 per cent would mean tax saving of 3-4 per cent for many manufacturing segments; a GST rate beyond 22 per cent could be detrimental for business confidence and growth in near term) and in ideal conditions.

However, Sharekhan in a research note said, “The proposed GST bill has exclusions and an additional tax of 1 per cent for inter-state movement for the initial two years which dilutes the essence of GST (to an extent) and limits positive impact on the economy.”

Vijay Singhania, founder, director, Trade Smart Online, said, “Clearance of GST bill in the prevailing winter session holds prominence currently. Optimism on the GST bill has built up over the last few days, however, overall expectations from the ongoing Parliament session is low. So, if anything positive come out then that could be the trigger for the markets.”

We list out 16 stocks that brokerage houses believe may benefit with the passage of GST.

Picks by Sharekhan

1) Maruti Suzuki India: Potential reduction in effective tax rate for mid-sized passenger vehicles.
2) Britannia Industries: Cost optimisation at each level of product value chain and competitive advantage could improve the growth prospects in long run.
3) Gateway Distriparks: With services across the distribution value chain, it will gain from incremental demand arising from the higher inter-state transport of products.
4) Century Plyboards: Organised players to gain market share with unorganised players losing tax advantage.
5) Pantaloons Fashion & Retail: Set-off for service tax paid on lease rentals and inventory cost optimisation.

Pick By YES Securities

1) Inox Leisure: According to YES Securities, a stock which would react positively to this would include INOX Leisure. A major hurdle for the multiplex business is the tax structure. The multiplexes have to pay entertainment tax on the box office revenues. And entertainment tax rates are decided by each state and can be as high as 40 per cent to 50 per cent as seen in states like Maharashtra, Uttar Pradesh, Bihar and Karnataka.

Nitasha Shankar, vice president, research, YES Securities, said, “High entertainment tax also acts as a deterrent to multiplexes screening live sporting events like cricket matches, etc. This is because tax on these screenings is currently calculated assuming 100 per cent occupancy during such events. There is an expectation that introduction of GST could help rationalize the tax structure as well.”

Picks by Anand Rathi Securities

1) Bata India and Relaxo Footwear: According to Chandan Taparia, there are so many types of taxes that are levied by the Central and State Governments on goods and services, with the implementation of GST footwear companies will also be benefit as they transport their final products to their regional heads and then local dealers.
2) Exide Industries and Amara Raja Batteries: These stocks will also benefit with the passage of GST. Lower lead and copper prices are also supporting to batteries companies and raw material cost is also declining.
3) PVR and Dish TV: Entertainment taxes will be absorbed once the GST will be implemented.
4) Others stocks: Cigarette majors ITC and Godfrey Phillips and some FMCG companies like Emami and Dabur will also benefit from the GST implementation.

(Disclaimer: The stocks are recommended by the respective brokerage houses and not a recommendation from Financial Express online)

Source: http://www.financialexpress.com/article/markets/indian-markets/if-gst-gets-a-passage-top-15-stocks-to-invest-in-on-stock-markets/172160/

 

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