What GST Holds in Store for Stocks in Different Sectors?

Sumit Kati

11 Jul 2017

This is a landmark moment in the history of Indian economy. In the past month, the government has made much headway in implementing the Goods and Services Tax (GST). However there is a lot of speculation among people about the effects of this move.

The GST rates announced by Finance Minister Mr. Arun Jaitley was a mixed bag. Some tax rates were on expected lines, while others surprised the markets. For instance, lowering of tax on coal and capital goods came in as a big surprise for the market. 

This game-changing reform is about to define market trends in the country for the foreseeable future. We decided to take a peek to see what the future might hold in store for company stocks in different sectors.

Sector 1# Fast Moving Consumer Goods
This sector received a massive boost from the Government’s tax reforms. The focus seems to be on keeping taxes low on mass consumer goods. While milk, grain and cereals are altogether exempt from GST, other products like sugar, tea, coffee and edible oil will attract just 5% GST. 

Future Impact:
Experts forecast a bright future for companies in the FMCG sector like Nestle, Marico, Dabur and Colgate. 

Sector 2# Consumer Durables and Capital Goods
The impact of GST has been a  mixed bag for the capital goods and the consumer sector. While Industrial capital goods will attract 18% GST instead of 28%, some consumer durable goods will attract higher tax. The GST Council has put items like refrigerators, ACs and fans in the maximum 28 per cent category. This is bound to increase prices of these products.

Future Impact:
Experts concede that there will be a hike in prices of AC’s, fans and such products. Voltas, Havells and CG Consumer may benefit eventually as the GST will in a way level the playing field for all the companies in this market. 

Sector 3# Automobiles
Cars will attract GST at the top rate of 28 per cent with additional cess on top of it. Luxury cars will attract a cess of 15%, small petrol cars will face 1% cess, and small diesel cars 3% cess. The cess on bigger cars was very well on the cards, but the cess on smaller cars is a surprise for markets. This hike could be a result of the 2% rise in excise duty in the last few yew years.

Future Impact:
Because of the current tax reforms, SUV manufacturers like Mahindra & Mahindra will not be affected much as their tax incidence was the same as before. The same goes for heavier automobile manufacturers like Eicher.

Sector 4# Multiplexes and Cinemas
The GST Council, led by Finance Minister Arun Jaitley, has fixed rate on movie tickets at 28 per cent, the highest rate slab which is also applicable for casinos and five-star hotels. The reason for this high tax rate is to counter the entertainment tax that ranged between 28% to 100% which changed state-wise. However, most multiplex operators are unhappy with this decision.

Future Impact:
There is a certain sense of disappointment over the new tax rates. These companies will be quite unhappy with the new reforms since they have been bracketed, with gambling and betting activity, at the highest tax bracket.

Sector 5# Service Sector
As per the current Service Tax statutes, tax is imposed at a flat rate of 15% across all services. The GST on services will come under four slabs of 5%, 12%, 18% and 28% exactly like the GST on goods.

Future Impact:
GST will be just 5% on economy flying, which will help airline companies like SpiceJet and Indigo give a bigger push to the Udaan program.

These are the effects of GST in some of the major sectors and how it will affect the stocks in the near future. Check out 5paisa.com to gain a better understanding on GST and its effects on the stock market. Their guidance can help you choose the right stocks and secure your investments.

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Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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What GST Holds in Store for Stocks in Different Sectors?

Sumit Kati

11 Jul 2017

This is a landmark moment in the history of Indian economy. In the past month, the government has made much headway in implementing the Goods and Services Tax (GST). However there is a lot of speculation among people about the effects of this move.

The GST rates announced by Finance Minister Mr. Arun Jaitley was a mixed bag. Some tax rates were on expected lines, while others surprised the markets. For instance, lowering of tax on coal and capital goods came in as a big surprise for the market. 

This game-changing reform is about to define market trends in the country for the foreseeable future. We decided to take a peek to see what the future might hold in store for company stocks in different sectors.

Sector 1# Fast Moving Consumer Goods
This sector received a massive boost from the Government’s tax reforms. The focus seems to be on keeping taxes low on mass consumer goods. While milk, grain and cereals are altogether exempt from GST, other products like sugar, tea, coffee and edible oil will attract just 5% GST. 

Future Impact:
Experts forecast a bright future for companies in the FMCG sector like Nestle, Marico, Dabur and Colgate. 

Sector 2# Consumer Durables and Capital Goods
The impact of GST has been a  mixed bag for the capital goods and the consumer sector. While Industrial capital goods will attract 18% GST instead of 28%, some consumer durable goods will attract higher tax. The GST Council has put items like refrigerators, ACs and fans in the maximum 28 per cent category. This is bound to increase prices of these products.

Future Impact:
Experts concede that there will be a hike in prices of AC’s, fans and such products. Voltas, Havells and CG Consumer may benefit eventually as the GST will in a way level the playing field for all the companies in this market. 

Sector 3# Automobiles
Cars will attract GST at the top rate of 28 per cent with additional cess on top of it. Luxury cars will attract a cess of 15%, small petrol cars will face 1% cess, and small diesel cars 3% cess. The cess on bigger cars was very well on the cards, but the cess on smaller cars is a surprise for markets. This hike could be a result of the 2% rise in excise duty in the last few yew years.

Future Impact:
Because of the current tax reforms, SUV manufacturers like Mahindra & Mahindra will not be affected much as their tax incidence was the same as before. The same goes for heavier automobile manufacturers like Eicher.

Sector 4# Multiplexes and Cinemas
The GST Council, led by Finance Minister Arun Jaitley, has fixed rate on movie tickets at 28 per cent, the highest rate slab which is also applicable for casinos and five-star hotels. The reason for this high tax rate is to counter the entertainment tax that ranged between 28% to 100% which changed state-wise. However, most multiplex operators are unhappy with this decision.

Future Impact:
There is a certain sense of disappointment over the new tax rates. These companies will be quite unhappy with the new reforms since they have been bracketed, with gambling and betting activity, at the highest tax bracket.

Sector 5# Service Sector
As per the current Service Tax statutes, tax is imposed at a flat rate of 15% across all services. The GST on services will come under four slabs of 5%, 12%, 18% and 28% exactly like the GST on goods.

Future Impact:
GST will be just 5% on economy flying, which will help airline companies like SpiceJet and Indigo give a bigger push to the Udaan program.

These are the effects of GST in some of the major sectors and how it will affect the stocks in the near future. Check out 5paisa.com to gain a better understanding on GST and its effects on the stock market. Their guidance can help you choose the right stocks and secure your investments.

Have Referral Code?