Creating a new normal…

The Indian markets have been scaling new highs with NIFTY remaining above 10,000 for over a month. The current rally in Indian market is fuelled by strong liquidity from domestic investors. As strong inflows continue into domestic mutual funds reforms initiated by the Modi-led government reaffirm the faith of foreign investors ( as evident from a rating upgrade from Moody’s) in the India growth story which could well stay for another 7 years.

Domestic mutual funds continue to attract flows from investors with assets under management (AUM) of the industry increasing by Rs.51,148 cr in October to touch a new high of Rs.21.41 lakh cr. As per data from the Association of Mutual funds of India (AMFI), equity-oriented mutual funds (including arbitrage funds), balanced funds and equity linked savings scheme (ELSS) funds saw net inflows of Rs. 21,900 cr in October. In September, these funds saw inflows of Rs.27,077 cr. For the first seven months of the current financial year, cumulative inflows into these funds have tripled to Rs.1.51 lakh cr as compared to Rs.46,840 cr in the same period of the previous year.

Foreign institutional investors (FIIs) who took a break from buying Indian shares in August and September are returning after recent government announcements such as the Rs.2.11 lakh cr PSU bank recapitalization plan. Over October and November so far, FIIs have invested a net of $1.9 bn in Indian equities. US-based Moody’s on 17th November upgraded India’s sovereign credit rating by a notch to ‘Baa2’ with a stable outlook citing improved growth prospects driven by economic and institutional reforms. This is expected to further boost FII investments into India. For the year to date, they are buyers to the tune of $7.4 bn.

September quarter results for most companies have already been declared & results have largely been in line with expectations. After its muted performance in the June quarter due to the transition to GST, India Inc is getting back on track going by the September quarter results. Post GST implementation GDP growth numbers, IIP & PMI index have all taken a hit, how they recover over the next few months will also be closely monitored. With real estate and gold giving subdued returns, investors have been looking at equities as an investment avenue. Thus in spite of the markets reaching all-time highs & rich valuations, strong cash inflows into the equity markets should continue for some time.

The markets seem to be consolidating above the 10000 NIFTY mark. Corporate performance & economic data which comes in H2FY18 will be critical. Last year post de-monetization Q3 & Q4 numbers for most companies & the economy were impacted. Thus the general expectation is that H2FY18 numbers should be significantly better y-o-y. Any correction in quality stocks is a good opportunity for investors to enter or re-enter the stock markets at lower prices if they had missed out previously. Given that the markets are at all-time highs one needs to tread with caution at current levels. For long term investors one should keep accumulating on dips as the markets are braced for significantly higher levels over the next couple of years.

Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’

SAMVAT 2074 … Festivities continue for markets

The Year in retrospect…
  • SAMVAT 2073 was a good year for the markets at it touched all-time highs & NIFTY was higher by ~18 % y-o-y crossing the 10k mark for the first time.
  • Markets were largely driven by domestic liquidity due to strong monthly inflows into equity mutual funds. Net inflows into equity MF in last 12 months were to the tune of Rs.1,15,000 cr.
  • FII inflows largely remained subdued with net inflows of Rs.5000 cr in the last 12 months.
  • The government on 8th November 2016 de-monetized all Rs.500 & Rs.1000 denomination notes & introduced new Rs.2000 & Rs.500 denomination notes.
  • GST was finally implemented from 1st July 2017. This is likely to boost the economy going ahead though there has been some slowdown initially.
  • Monsoons have been marginally below (5% below normal as per IMD) normal & what impact it has needs to be seen.
  • On the macro front WPI & CPI are at comfortable levels below the RBI guidance of 4%. IIP remained low, an ongoing concern.
  • Indian foreign exchange reserves crossed the $400 bn mark to touch a high of $402,246 bn as on 22nd September as per RBI, the highest ever that India’s central bank has amassed.
  • Departing from the tradition of presenting the Union Budget on the last working day of February, the budget was presented on 1st February. This was done so that the legislative approval for annual spending plans and tax proposals could be completed before the beginning of the new financial year on 1st April. The Cabinet also did away with the practice of having a separate Railway Budget, merging it with the Union Budget.
  • There has been 30 IPOs since last Diwali garnering over Rs.45,000 cr of which Rs.14,000 cr was raised this month only. Six stocks Avenue Supermarts, Shankara Building Products, Salasar Techno Engineering, CDSL, Apex Frozen Foods and Sheela Foam delivered multi bagger returns.
  • Interest rates over the last year have largely been stable with a downward bias as there was only one Repo rate cut of 25bps (from 6.25% to 6% currently) in the last 12 months. Bank interest rates though have been reduced by a larger margin due to excess liquidity in banks post demonetization & lower credit off take.
The Year ahead…
  • Going ahead in SAMVAT 2074 geo-political tension between North Korea & USA lingers.
  • Gold prices have been inching up due to geo-political tensions. Global crude oil (Brent) prices are expected to be range bound between $50-$60 through the year. Other commodities such as copper & steel are expected to inch up with a positive bias through the year.
  • The Indian banking system continues to be burdened by high NPAs, but we believe that we have seen the worst of it & with new measures like the Insolvency & Bankruptcy Code, improved profitability, economic growth & latest corporate restructuring, things should gradually improve.
  • Post GST implementation GDP growth numbers, IIP & PMI index have all taken a hit, how they recover in H2FY18 will be closely monitored. With low bank fixed deposit rates, subdued real estate market (with high transaction cost) and stagnating gold prices, equities seems to be the most viable domestic investment avenue for investors. Thus in spite of the markets reaching all-time highs & rich valuations, strong cash inflows into the equity markets should continue for some time.
  • Markets are currently at all-time highs largely driven by liquidity rather than macro-economic data or corporate performance. Valuations are on the higher side (SENSEX PE – 24X, NIFTY PE- 26X) and to an extent unjustified by past performance. Thus company performance & economic data which comes in over the next few months will be critical. Last year post de-monetization Q3 & Q4 numbers for most companies & the economy were impacted. Thus H2FY18 numbers should be significantly better y-o-y. Any correction in quality stocks is a good opportunity for investors to enter or re-enter the stock markets at lower prices if they had missed out previously. Given that the markets are at all-time highs one needs to tread with caution at current levels. For long term investors one should keep accumulating on dips as the markets are braced for significantly higher levels over the next couple of years. 

Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’

Market Outlook- September

The Indian markets have been range bound over the last month with NIFTY consolidating between 9700-10200. The current rally in Indian market is fuelled by strong liquidity from domestic investors. As strong inflows continue into domestic mutual funds reforms initiated by the Modi-led government reaffirm the faith of foreign investors in the India growth story which could well stay for another 7 years. Though there was some geo-political tension between India-China & especially USA-North Korea, things seem to have just cooled down. Now with most of the worries out of the way, the stage is set for the index to touch fresh highs.
The markets are at all-time highs largely driven by liquidity especially from domestic institutional investors. GST has been implemented and the first few months of the transition has largely been event free though some rates are still being re-aligned. Post GST implementation GDP growth numbers, IIP & PMI index have all taken a hit, how they recover over the next few months will be closely monitored. With low bank fixed deposit rates, subdued real estate market (with high transaction cost) and stagnating gold prices, equities seems to be the most viable domestic investment avenue for investors. Thus in spite of the markets reaching all-time highs & rich valuations, strong cash inflows into the equity markets should continue for some time. With monsoons being below normal what impact it has on the agri-economy also needs to be seen.
Market movement over the last few months has largely been driven by liquidity rather than macro-economic data or corporate performance; valuations are on the higher side and to an extent unjustified by past performance. Thus company performance & economic data which comes in over the next few months will be critical. Last year post de-monetization Q3 & Q4 numbers for most companies & the economy were impacted. Thus the general expectation is that H2FY18 numbers should be significantly better y-o-y. Any correction in quality stocks is a good opportunity for investors to enter or re-enter the stock markets at lower prices if they had missed out previously. Given that the markets are at all-time highs one needs to tread with caution at current levels. For long term investors one should keep accumulating on dips as the markets are braced for significantly higher levels over the next couple of years.

Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’ 

Decoding GST for your business…

Who needs to register for GST?
Anyone who sells goods and/or provides services worth more than Rs.20 lakh (Rs.10 lakh for North East states) in a financial year & taxpayers already registered under VAT/service tax must register under GST. Those making inter-state supplies or supplies via e-commerce must mandatorily register irrespective of turnover.
How will it help?
Registering under GST allows you to claim input tax credit. Which means, at the time of paying GST which you have collected on your sales, you can reduce the GST you have paid on inputs used for your business. If you are unregistered, businesses to which you supply will have to do compliance on your behalf which will increase their cost & thus you may risk losing the business.
How to register
New registrations have not opened yet. Existing central excise and service tax registrants and VAT dealers will first be migrated to GST. To migrate to GST, a provisional ID and password by the CBEC/State Commercial Tax Departments will be provided. You can use this provisional ID and password to log on to the GST Common Portal (https://www.gst.gov.in). Fill up the form and submit Form 20 along with necessary supporting documents.
Everything will be online
All GST compliance will be paperless. GST returns will have to be filed online. Therefore, it will be beneficial to move to an electronic system of record keeping. Details of every B2B invoice will have to be submitted to GSTN. Invoices must also be prepared in the format prescribed under GST Rules. The process of tax payment, tax credit, and refund of GST would be carried out electronically.
Composition Scheme
Small businesses and taxpayers with turnover of less than Rs 50 lakh in a financial year can opt for the composition scheme under which they will be taxed at fixed rates on turnover; 1% for manufacturers, 2.5% for restaurants, 0.5% for other supplies which may be notified in due course. Composition dealers will have to file quarterly returns instead of three returns every month. However, they cannot collect tax from customers. They also have to pay GST out of their own pocket and are not allowed to claim any input tax credit. This scheme is not available to those who make interstate sales or sell via e-commerce.
Penalty for non-compliance of GST
Anyone who supplies goods on which tax is not paid or is short paid, must pay a penalty of 10% of the tax amount due or Rs 10,000, whichever is higher. The penalty can be 100% of the tax amount in case of deliberate evasion or fraud. There are other penalties for non-filing of returns, other non-compliance etc.
Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’ 

GST – Unifying multiple indirect taxes

With the GST Bill in the final stages of approval & a likely implementation from 1st July 2017, let us try and understand its significance & impact.
What is GST? The Goods and Services Tax (GST) will replace nearly a dozen central and state levies (indirect taxes) into a single national sales tax. It will make the movement of goods cheaper and seamless across the country with no inter-state taxes. It would be far simpler than the current system, where a good is taxed multiple times and at different rates.
What will be the rates? GST is expected to have tax slabs of 5%, 12%, 18% and 28%, plus a levy on taxes on luxury items like cars, aerated drinks and tobacco products to compensate states for any revenue losses in the first five years. The GST council is yet to decide which goods & services fall in which slab. The GST rates will remain broadly in line with the existing rates. To keep inflation under check, essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate.
How will consumer benefit from the GST? With the implementation of GST, consumers will not be subjected to double taxation. All taxes that are levied while purchasing good will include both the central government’s taxes as well as the state government’s taxes. Thus there will be uniformity in products/service prices & a possible decline in prices due to some local taxes not being there.

How will the GST impact businesses? Companies will have to overhaul their accounting systems, which may involve one-time investment costs. There may also be chaos in the short term as the government gets the computer software up and running. GST Network (GSTN)—GST’s IT infrastructure arm—and CBEC together will now conduct training so that businesses know how to file their returns. Logistics companies stand to gain as it becomes easier to ferry goods across India. Impact on other sectors & services largely depend on the fine print of the GST, the tax rate they will fall under, weather it is higher or lower than the sum of current multiple taxes payable.

Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’ 

Market Review – January 2017

We move into 2017 with renewed hope amidst uncertainty in India relating to the post demonetization impact in the economy and globally relating to what policy stands are taken by the newly elected US President Donald Trump who assumed office on 20th January 2017. None the less we remain optimistic of Indian economic growth with higher spending on rural/agricultural economy & infrastructure as announced in the budget on 1st February 2017 to overcome the short term shocks of demonetization & expected GST implementation from 1st July 2017.
The key to market performance would lie in the revival in corporate profitability. Departing from the tradition of presenting the Union Budget on the last working day of February, the government presented the budget on 1st February. Sentiments are week & H2FY17 results could be subdued. Another key determinant of market trajectory from here on would be the implementation of the GST Bill. Some of the finer points have to be ironed out & it will miss the April deadline & is now expected to be implemented by July 2017. We remain positive on PSU Banks and metals & mining sector over the next year.
This is a good time to consolidate your holdings for the long term. Donald Trump has just assumed office and any change in policy stance & decisions taken will be critical to how markets behave in the near future, but being a businessman himself he is unlikely to take any decisions which could have a negative economic outcome. Recovery in commodity prices also indicates towards an economic recovery globally. The implementation of the GST Bill is just a matter of time as it is likely to be beneficial to all parties & states, not only the central government. Low inflation and declining interest rate augers well for India. Declining bank interest rates, gold prices & subdued real estate market post demonetization augers well for equities and makes it an attractive asset class. Thus we feel this is a good time to consolidate your holdings in equities for the next up move in the stock markets.

Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’