GST rollout: Companies' Q1FY18 profits to take a hit, worries analysts

Equity markets have dropped from its high levels and have been trading from flat to negative from past one week. 

Is new tax regime to blame?

Goods and Service Tax (GST) will soon be the new face of the tax structure. As just two days left for the official launch of GST, the equity markets seems to be cautioned. 

Till now, from August last year, when GST Bill was passed in Rajya Sabha, the equity markets have been reacting positively. But, now as the rollout date is coming near, the equity investors have become "nervous".

Sensex and Nifty have remained flat over past week and still remain under corrective mood. The investors expect such cautious approach in the markets to continue for coming days as well.

Today, Sensex closed at 30,834.32, down 123.93 points or 0.40%. While, NSE Nifty ended at 9,491.25, down 20.15 points or 0.21%. 

Nikhil Khandelwal, MD, Systematix shares, said that GST rollout has brought some uncertainty about the cost of goods and services post GST roll out, with majority consensus building up for GST being inflationary for the economy. 

"This is driving a lot of short term money off the market as a wide range of sectors, especially consumer, auto ancillaries, steel, cement and building materials, predicted to have significant volatility in its volume and profits in Q1 and some part of Q2 FY18," Khandelwal added. 

Having similar views, Milan Vaishnav, Technical Analyst, Equity Research, added saying that it is true the equity investors have been looking GST with some caution and nervousness. The reason is that it is likely to disrupt the operational efficiency of the companies for a quarter or so which is turn might affect their operative profits to some minor extent. 

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said, with GST just around the corner, there are serious apprehensions regarding the disruptions that it might cause. Since this is a major shift without any precedent all talks of likely disruptions are speculative. The fact is that we don’t know much about the possible disruptions and their likely impact. It is this 'fear of the unknown’ that prevents investors from taking a position. All investors- retail and institutional are in a wait and watch mode.

If we look at the performance of Sensex and Nifty in the past one week, this is how it looks like: 

Sensex which was trading at 31,311.57 on June 19, today ended at 30,834.32. In one week, the benchmark has dropped by 1.5%. Taking a look at monthly performance, Sensex was trading at 31109.28 on May 29. Which means, it has given negative returns of 0.88%. 

Coming to Nifty, the benchmark was trading at 9657.55 on June 19 and today it ended at 9491.25, giving negative returns of 1.7% in just one week.

For the whole month, Nifty was trading at 9604.9 on May 29, which means it has dropped by 1.18% in a month. 

However, the analysts and the government are still focussing on looking GST from a long-term perspective. 

For long-term investors, experts have said that markets will react positive with hopes that GST will boost the ease of doing business in India because it brings individually tax rates into a single tax module and will be a boon for many industries and business within the country.

Anand James, Chief Market Strategist, Geojit Financial Services Ltd said, "To invest in equity markets, the important thing is "patience". So, if you are looking Nifty at 10,000-mark, the best way to reap such windfall gains is to stay invested."