Title. Good and Service Tax(GST) A Revolutionary Step

Transcription

1 Title Good and (GST) A Revolutionary Step 23 rd May 2017

2 GST Impact On Economy And Sectors Tax rates for majority of items, under the new Goods and (GST) regime have been announced, with both goods and services being classified under five brackets of 5%, 10%, 12%, 18% and 28%. The Government is targeting implementation from July 1, 2017 onwards. Impact of GST on the economy Impact on inflation Our estimates suggest that the Government in line with its guidance has succeeded to a large extent in keeping the changes in tax rates inflation neutral from a Consumer Price Index (CPI) standpoint However in the near term with some increase in costs on account of the formalisation of the GST regime, CPI inflation would see some increase but would be within manageable levels We expect CPI inflation to average 4.5-5% in FY18 (notwithstanding a one-time impact of higher HRA (house rent allowances) under the 7 th Pay Commission) Impact on growth and fiscal deficit The impact of GST could be marginally disruptive in the near term as inventory destocking and restocking takes place, and GDP growth is likely to be adversely impacted to that extent in 1HFY18, albeit temporarily Overall we believe, that any adverse impact of GST implementation would be temporary in nature We expect real GDP growth to be in the range of 7-7.5% in FY18 Over time, the implementation of GST would improve tax compliance and with it the tax GDP ratio of the country which would be positive from the perspective of fiscal consolidation Impact on policy rates: With CPI inflation expected to remain largely benign especially in HIFY18, we expect RBI to keep policy rates on hold. The key to watch out for will include (a) the actions of the US Federal Reserve (b) trajectory for commodity prices (c) progress of the monsoons and the impact on food inflation (d) hike in HRA under the 7 th Pay Commission

3 GST Impact On Sectors : Automobiles Central Excise/ Current effective rate Automobiles Two-wheelers Negative Small cars (<4 m in length and engine less than 1,200 cc/1,500 cc for petrol/diesel vehicles) Mid-sized cars/suvs (>4 m in length and engine size less than 1,500 cc) cess of 1% Negative cess of 3% Negative SUVs and cars with engine size greater than 1,500 cc cess of 15% Negative Commercial vehicles Negative Tractors Neutral

4 GST Impact On Sectors : Consumers Central Excise/ Current effective rate Sector impact- Positive Consumer products FMCG products (except those stated below) (varies across states) Negative Bullion/Jewellery Not decided Cigarettes 46 (blended; 27 (blended - varies varies based on across states) stick's length) peak cess Neutral Bakery items Biscuits below Rs100/kg Nil Not decided Sweet biscuits/other biscuits Not decided Pastries and cakes Not decided Rusks, toasted bread and similar toasted products Nil Not decided Beverages Aerated waters containing added sugars cess Negative Fruit pulp or fruit juice-based drinks Negative Malted milk (including powders) for infant use Negative Dairy products Butter Nil Positive Cheese Nil Positive Ghee Nil Positive Milk and cream Nil Nil Nil Nil Neutral Milk food for babies Nil Nil Nil Nil Neutral Milk powder/ UHT milk, skimmed milk, yoghurt Nil Neutral

5 GST Impact On Sectors : Consumers Central Excise/ Current effective rate Other food items Chocolates Negative Edible oils Nil Neutral Honey Nil Neutral Ice cream Neutral Pasta Neutral Personal care items Coconut oil Nil Positive Hair oils (excluding coconut oil) Positive Sanitary napkins Nil Negative Consumer durables Air-conditioner, fans, microwave oven, refrigerator, washing machines Retail Branded Garments 2 ~10 To be decided Neutral, companies should be able to pass on the increase Neutral if 12%

6 GST Impact On Sectors : Building Materials Central Excise/ Current effective rate Building materials Paints Negative Plywood Neutral MDF Neutral Laminates Positive Pipes Neutral Tiles Neutral Sanitaryware Neutral Faucets Positive Adhesives Cement 12.5% with 30% abatement Positive - Benefit for adhesives would be for packaging below 1 kg Neutral

7 GST Impact On Sectors : Hospitality Central Excise/ Current effective rate Hospitality Restaurants - Non AC Neutral Restaurants - Non AC with Liqour License Positive Restaurants - AC Neutral Restaurants - 5 Star Negative Rooms - > Neutral Rooms to Negative Rooms to Positive Rooms - <5000 and 5 Star Hotels Negative

8 GST Impact On Sectors : Media Media and Entertainment Print Sector Central Excise/ Current effective rate Circulation Revenues Neutral Advertising Revenues Negative Radio Sector Negative Broadcasting Negative MSO's Positive DTH's Positive Cinema Tickets Neutral F&B Negative

9 GST Impact On Sectors: Chemicals & Pharma Central Excise/ Current effective rate Chemicals Industrial Chemicals Positive Agrochemicals Neutral Pharmaceuticals & Healthcare Essential medicines Neutral Other medicines Neutral Healthcare Neutral

10 GST Impact On Sectors: Engineering, Oil, Metals Engineering goods Central Excise/ Current effective rate Intermediate goods Largely neutral Gen-sets Negative Oil & Gas Lubricants Positive Kerosene, Domestic LPG Neutral Major Petroleum products like petrol, diesel Rs /lt NA Neutral - Kept out of GST Metals Steel products 12.5 ~20 18 Neutral Coal Positive - lower input cost

11 GST Impact On Sectors : Miscellaneous Central Excise/ Current effective rate Transportation Freight through trucking 15% with 70% abatement 5 5 Neutral. Positive if input tax credit allowed Freight through rail containers 15% with 60% abatement 6 12 Negative but lower impact due to full input tax credit Airlines - Economy class Positive - Business class Negative Utilities Coal Neutral, its pass through under tariff

12 Strategy For Investment In 2017 Assuming an agnostic perspective on risk, the following recommendations can be prescribed:- Around half the money in SIP with 5 year horizon The rest of the corpus can be placed aside for event related volatility, such as: US fed raising interest rates India Quarterly Earnings European Banking Crisis China Slow down GST Roll Out In the absence of significant event risk, one can look at fresh issuance opportunities with attractive valuations in IPO, OFS and FPO Any IPO in which NBFC are providing leveraged financing for applications might be a good bet for retail application 12

13 Key Recommendations Key theme Remarks Large Cap play on buying sectoral leaders that benefit from improving investment climate Kotak 50 Diversified/Multicap focus on sectors that are likely to benefit the most across market cap Infrastructure revival True-to-label fund recent thrust of government to revive the infrastructure theme Through SIP in Midcap oriented scheme ELSS Equity allocation with ability to reduce tax outgo Balanced benefit from debt and equity allocation Kotak Select Focus Kotak Infrastructure & Economic Reforms Fund Kotak Emerging Equities Fund Kotak Tax Saver Fund Kotak Balanced Fund We recommend investors to invest through SIP with a 5 years horizon. 13

14 RISKOMETER KOTAK INFRASTRUCTURE & ECONOMIC REFORM FUND Kotak Balance Fund 14 * Investors should consult their financial advisers if in doubt about whether the product is suitable for them

15 Disclaimers & Risk Factors The information contained in this (document) is extracted from different public sources. All reasonable care has been taken to ensure that the information contained herein is not misleading or untrue at the time of publication. This is for the information of the person to whom it is provided without any liability whatsoever on the part of Kotak Mahindra Asset Management Co Ltd or any associated companies or any employee thereof.we are not soliciting any action based on this material and is for general information only. Mutual Fund investments are subject to market risks, read all scheme related documents carefully. 15