Monday 1 August 2016

Nifty Fut (Aug): 8775-8875 May Be A Big Hurdle Despite So Much Euphoria About GST

As par some reports, only the GST amendments cleared by the cabinet last week (removal of 1% mfg tax and full state compensation for the first five years) may be passed by the RS this time; original GST bill may be passed in the next winter session of parliament with broad consensus about GST rate and dispute redressal mechanism


Trading idea: Nifty Fut (Aug)

SGX -NF: 8712 (CMP)

NSE-NF: 8692 (LTP)

Sell around 8725-8775 OR on rise around 8900-8950

TGT: 8655*-8595-8465*-8305-8270*-8135-8000*-7920-7835-7675* (5-30 days)

TSL> 8810 OR > 8975


Note: Sustaining above 8810 area, NF may rally towards 8875/8900-8950, which may be again a good supply zone. Only consecutive closing (3 days) above 8975 zone, NF may further rally up to 9050-9200* and 9265-9375* & 9520-9585* in the near to short term (alternative bullish case scenario).

Anyone holding long positions in NF and continue to do so, may also watch 8655-8595*-8465 zone as immediate support.

Apart from global PMI data (China/EU/India/US) today and expected Abe stimulus (Helicopter Money) tomorrow, all eyes will be on the progress of GST and crucial meeting between BJP & Cong.

Although, Indian market may have already discounted the passage of GST in the RS this time, its not a "done deal" yet. As par the FM, he is keeping his "finger crossed" for passage of the same in the current monsoon session of the Parliament; i.e. the FM is himself not 100% confident.

There may be some reasons behind it. As par some media reports, only the recent GST amendment portion may be passed this time by the RS and the original GST bill may be passed in the next winter session of the Parliament after broad consensus about GST rate (18-22% or 25-27%) and some other vital issues like dispute redressal mechanism, state's right about any emergency tax imposition etc.

Some political parties are also demanding an "all party meeting" to settle all these issues.

Present RS math is also indicating that Govt may not be in a position to pass the GST by voting and broad consensus may be the only way out.

Moreover, even if the original GST bill is passed this time, it will be very difficult to roll out/implement the same wef April'17 due to lack of sufficient time as there will be several legislative issues and other formalities. The bill has to be passed by at least 50% of the 29 state assemblies and final GST laws (rules & regulations) has to be drafted and passed.

Also industry and business community may not be ready for GST roll out and there will be several procedures and IT infra upgradation for implementation of the same.

Politically, all the parties including BJP/RSS may also be concerned about the immediate inflationary impact on the overall economy because of increase in service tax and some other issues despite GST credit mechanism. So, BJP/RSS may not take any risk ahead of 2019 election and may also prefer to pass it in the next winter session of the parliament after broad consensus about the GST rate (revenue neutral rate-RNR).

If the original GST bill will be passed in the next winter session, then it will be virtually impossible to implement it just before 2019 election and there will be no risk for any political party. At the same time all political party can claim credit about GST passage and ultimately it may be implemented in 2020 (after 2019 election). In that scenario, the expected effect of the same may only be visible after FY:2021-22 on the overall Indian economy and the corporate earnings.

There are so much definitions about RNR and if ultimately tax burden is not reduced on the common man, then what is the use of it ? 

No states or even the centre is ready for any sacrifice in their current revenue, yet all are looking at the vote bank to keep the GST rate moderate. 

As par the market is concerned, a GST rate of 18-20% may enthuse it but anything above 20% might disappoint it (22-25%) as a "No GST" will be better than a "Faulty GST". The ideal GST should be "one tax, one India" including petro, alcohol, automobile and tobacco tax. There should not be any concept of so called "sin tax" in the GST and only in that scenario, we will get the actual effect of the GST and consumer demand will pick up significantly in the lower cost of overall economy/goods & services.

In any way, even if GST is passed this time, going by the technicals, market may see massive long unwinding (profit booking) in a classic example of "buy the rumour and sell the news" as this may be already priced in to a great extent.

Analytical Charts:








Article courtesy: Frontiza.com



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