Benchmarks keep head above water in early deals

Indian equity benchmarks have made a flat-to-cautious start on Wednesday on geopolitical worries. North Korea said that it successfully test-launched a first intercontinental ballistic missile, (ICBM), which many experts said could put all of the US state of Alaska within range for the first time. Traders also remained concerned with a Fitch Ratings’ report stating that the newly-implemented goods and services tax (GST) will support productivity and boost the long-term growth prospects but is unlikely to increase tax revenue in the short-term. However, markets have made some recovery and are keeping their head above water in early deals, as traders opted to buy beaten down but fundamentally strong stocks.

Some support came in with turnaround in regional counters with most of the Asian indices entering into green terrain. However, gains remained capped as traders remained worried on looming geopolitical concern over North Korea’s nuclear weapons program, after US confirmed North Korea’s claim that it had launched an intercontinental ballistic missile. Japanese shares weighed down by the strengthening yen.

Back home, logistics stocks remained buzzing, as the Union Road Transport and Shipping Minister Nitin Gadkari has said that logistic sector will gain most with GST, as on the back-of-the-envelope calculations logistics costs would come down by at least 20 per cent. Gems and jewellery stocks shines on report that India’s gems and jewellery exports rose over 11 per cent to $6.78 billion during the first two months of the current fiscal, largely driven by demand in major markets like the US.

The BSE Sensex is currently trading at 31253.81, up by 44.02 points or 0.14% after trading in a range of 31189.90 and 31284.64. There were 20 stocks advancing against 11 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index gained 0.62%, while Small cap index was up by 0.71%.

The top gaining sectoral indices on the BSE were Energy up by 0.85%, Basic Materials up by 0.67%, Industrials up by 0.66%, Auto up by 0.65% and Metal up by 0.63%, while Telecom down by 0.48%, TECK down by 0.44%, IT down by 0.40% and Consumer Durables down by 0.08% were the top losing indices on BSE.

The top gainers on the Sensex were Mahindra & Mahindra up by 2.46%, Tata Motors - DVR up by 1.43%, Reliance Industries up by 1.22%, Asian Paints up by 1.16% and Sun Pharma up by 1.05%. On the flip side, Bharti Airtel down by 1.21%, HDFC down by 0.97%, Wipro down by 0.92%, Infosys down by 0.84% and Lupin down by 0.43% were the top losers.

Meanwhile, global ratings agency, Fitch ratings in its latest report has said that the newly lunched one nation one tax, namely Goods and Services Tax (GST) is likely to remove domestic trade barriers and will boost revenue indirectly over the long term as it supports Gross Domestic Product (GDP) growth and encourages tax compliance. But it also said that it poses significant short-term risks, emphasised by the late changes to the bill and the disruptive roll-out of demonetization. Fitch has said that the landmark tax reform that came into effect from July 1, 2017,  is relatively complex, including multiple tax rates for different goods - ranging from 0-28%, or higher where ‘sin taxes’ are applied - and requires frequent filing in all states in which a company operate. The ratings agency however said that it is ‘far simpler’ than the previous system, under which each state set its own sales taxes - in addition to the central government - and imposed border taxes on goods entering the state.

The US-based credit rating agency also said that the unified national system should offer significant opportunities for productivity and added that it will become much quicker and less costly to move goods across the country now that trucks will not be held up at checkpoints at state borders. It added that smoother logistics should reduce retailers’ need for working capital and allow them to operate centralised warehouses, rather than in every state. Supply chains could extend, encouraging specialisation, now that there is less incentive to source goods within state border. Tax filing may also become less time-consuming as a result of the new electronic system. Large companies will now have an incentive to pressure smaller suppliers into compliance.

As per the report, the new electronic filing system is also likely to lead to more tax reporting. Moreover, the tax base will be broadened, as SMEs with sales of only Rs 20 lakh will now be exempt from paying GST, down from Rs 1.5 crore. Small informal retailers also find it harder to understate their sales or to avoid filing tax returns altogether in a system where transactions are tracked throughout the supply chain, as a result this could accelerate the shift toward organised retail. It added that the informal sector is very large, accounting for over 20% of GDP and 80% of employment, and is largely untaxed. This is one of the reasons why government revenue is low, at just 21.4% of GDP in 2016, compared with a median of 29.9% for ‘BBB’ range sovereigns.

The CNX Nifty is currently trading at 9623.00, up by 9.70 points or 0.10% after trading in a range of 9607.35 and 9624.75. There were 35 stocks advancing against 16 stocks declining on the index.

The top gainers on Nifty were Mahindra & Mahindra up by 2.30%, Reliance Industries up by 1.36%, Tata Motors - DVR up by 1.29%, Tata Motors up by 1.14% and Sun Pharma up by 1.05%. On the flip side, Bharti Airtel down by 1.40%, Aurobindo Pharma down by 1.09%, Infosys down by 1.06%, Wipro down by 0.94% and HDFC down by 0.83% were the top losers.

Asian markets were trading mostly in green; FTSE Bursa Malaysia KLCI rose 0.59 points or 0.03% to 1,762.67, KOSPI Index increased 3.4 points or 0.14% to 2,383.92, Shanghai Composite gained 7.53 points or 0.24% to 3,190.34, Taiwan Weighted added 12.11 points or 0.12% to 10,359.89 and Hang Seng was up by 89.84 points or 0.35% to 25,478.85.

On the flip side, Nikkei 225 decreased 16.99 points or 0.08% to 20,015.36 and Jakarta Composite was down by 6.77 points or 0.12% to 5,858.59.