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The impact of GST

Several analysts feel that there will be near mayhem in the short-term with the GST in play
By OLM Desk | July 28, 2017

As much as one would like to experience the one-nation, one-tax regime with the GST implemented; the indications that we are not ready for it are clearly visible. Several analysts feel that there will be near mayhem in the short-term with the GST in play. “We could possibly see some disturbance due to implementation of the GST in the short term such as one or two quarters which should be used as an opportunity to buy into names you had done your homework on and froze in on an entry price,” suggests Kumar.

However, the implementation of the GST will also result in the folding up of several businesses, especially in the small and medium segment, particularly those that do not have an organised machinery to run their operations. The reason: GST will cause large businesses to stop working with vendors that don’t file taxes. The other fallout of the GST will be the reduction in the unorganised and informal economy.

For instance, today, more than 90 per cent of workers are employed informally—GST will force companies with such a workforce to bring them under the tax system to claim tax credit against their costs. The fallout will further kill the still prevalent black economy, as many in the unorganised sector will need to transform their business models. However, in the long run, GST implementation will not only provide investment opportunity, it will also add significantly to the economy.

Definitely, GST will effectively benefit the government and the organised sector companies and if they play fairly, the savings should pass on to consumers. More importantly, tax collection by the government will go up. Several sectors will also directly benefit with GST implementation like logistics companies.

Read: Many investors burn their fingers by investing when the markets are at an all time high

Investor alert

When it comes to stock market investing, nobody can predict what’s going to happen in the market. Just the way nobody clearly got the timing and dimension of the speedy rise over the past six months, nobody will be able to clearly point at the downfall either, when it happens. And, whether the markets will fall or they may continue to go up cannot be confirmed or denied. To quote from Daniel Kahneman’s book, Thinking, Fast and Slow, “The idea that the future is unpredictable is undermined every day by the ease with which the past is explained.”

Stock market movements are not always driven by financials and statistics—they have a healthy dose of sentiments that turn them positive. One thing that you should not indulge in is to panic in case of a correction or a fall. The next is to clearly understand the difference between an investor and a trader. Traders look at booking profits, playing short and every trick in the book for short-term gains. In contrast, investors stay invested over market cycles to benefit from the longterm wealth creation.

“We advise investors to take staggered and disciplined approach to invest in equities, rather than chase momentum blindly. We expect equities to provide healthy returns from long term perspective even from current levels. However, as volatility is inherent to equity investing, investors should also be prepared to withstand any volatility in the short term,” explains Upadhyaya.

Investing in mutual funds in these times will work well, because the biggest advantage that one has when investing in them is the transfer of the headache to think about investing to the fund manager. At the same time, investors should stick to their investments and not panic. While one should keep abreast with stock market movements and not be complacent, one should also use this opportunity to exit old dud stocks and fund investments, which have gone up only because of an overall rise in the markets. More importantly, stick to your asset allocation and monitor your investments closely.

There are still a lot of opportunities in this market and will also be there in the future. One often reads about past performance not being indicative of future returns— the same is true with index levels and valuations. A lesson to learn from past market highs is to be vary of overzealous financial intermediaries who may sense the opportunity to push their ideas and products that may not be necessarily in your best interest. Likewise, smart enterprises are using the rising markets to go public with IPOs, as a favourable market condition helps them to raise funds easily.

Investing in IPOs is not a bad thing, but do not jump into the bandwagon just because you see more IPOs coming up these days. Use your discretion and merit before committing your money. Likewise, be realistic with your expectations from markets; because just like the rises, there will also be dips and volatile phases that you should be prepared for. While you do benefit from regular investments in the long run, invest with a financial goal, set timelines for these goals and exit only when your goal is approaching or achieved before the set timeline. Use this market run up to build wealth and grow rich.

Read: While the PE does look high, earnings is low as corporate India’s ROE is yet to revert to its long-term average




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