NEW DELHI: The GST Council cutting rates on 88 items, coinciding with the Modi government comfortably fight through a no-confidence motion, is likely take the stock market to higher levels in the short term.The move to cut rates by the GST Council in its 28th meet will cheer the middle class ahead of elections in key states of Madhya Pradesh, Chhattisgarh and Rajasthan, and the much-endorsed consumption theme may get a huge leg up on the Dalal Street, say market watchers.
The outcome of the no-confidence motion, on the other hand, would ease concerns over a brewing united opposition', they said.
Consumption a big themeExperts have already started picking their sub-themes.New GST rates will generally be positive for discretionary consumption, said Viral Berawala, CIO at Essel Mutual Fund.Berawala said that the GST rates on paints, electrical, sanitary pads and leather items have all been reduced.
All though, we still have many GST rates, gradually more goods are in 18 per cent slab," he noted.The Council this past weekend cut GST rates for 15 times to 18 per cent from 28 per cent.
The list included vacuum cleaners, washing maching, small TVs, fridge, laundry machines, paints and varnishes.
After the revised rates, only 35 items will be left in the 28-percent bracket from 226 goods as on July 1, 2017.
One can expect reduction in GST rates to provide additional impetus to the upcoming festival season, and creating a positive consumer and household sentiment ahead of state elections, said Dhananjay Sinha, Head of Research, Economist Strategist at Emkay Global Financial Services.Nirmal Bang Institutional Research said that some of stocks under its coverage such as Whirlpool of India, IFB Industries, Bajaj Electricals, V-Guard Industries, Havells India and Crompton Consumer will get a leg up.
Footwear companies like Bata India and the hospitality stocks such as Lemon Tree Hotels will also be positively impacted, it said.
Acche din for middle classThe decisions taken by the Modi government such as the cash ban and implementation of the GST, hurt the informal economy, and thus jobs.
Besides, the recent rise in petrol, diesel and LPG prices were a crucial variable impacting the middles class voters.
The government seems to be addressing these concerns and the recent farm loan waivers announced by states and a substantial hike in MSP prices for the kharif season are cases in point.The GST bonanza has added to the ongoing populism ahead of crucial elections, Sinha said.In a way the Modi government is working systematically to blunt the criticism it is facing from the opposition of peoples issues, which also mirrors in the outcomes of recent state elections and by-polls, Sinha said in a note.The GST rates will be effective from July 27.Confident Modi elections 2019Last week was crucial as it was to give important cue over the credibility of a brewing united opposition.
But the Modi government received 325 out of 451 votes that were cast.
The Opposition could not gain much as TRS and BJD walked out.
On the other hand, AIADMK supported NDA which made up for non-participation of Shiv Sena.This tore the entire concept of united opposition, said CNI Research in a weekly note.
The brokerage noted that ever since Budget 2018, the market fell on 2019 election uncertainty.Where is market headedIt looked as if the market partly factored in the outcome as the BSE Sensex rose 145 points, 0.4 per cent, to 36,496 ahead of the crucial vote on Friday.
The Nifty also topped 11,000-mark.
The market recovered to all-time highs only because there were a lot of short sells were trapped.
We continue to believe that sentiment will change now and the uncertainty will recede in coming days.
This will take Nifty to 12,000 before election, the CNI Research said.Sinha said that the market will have to balance between the positive demand impact of reflationary fiscal, emerging macro imbalances due to overload of populism, and potential outcomes of state elections.Overall, the market can still remain volatile, given global developments of trade conflicts and narrowing excess liquidity and tightening domestic liquidity, which have collectively caused meltdown in the broader market.