Fear of subdued GST collections in FY19 dogs stock markets

ET Intelligence Group: Based on the current monthly rate of Rs 87,400 crore, the street expects that the Goods and Services Tax (GST) collection may remain range-bound unless compliance measures improve, particularly invoice matching. The lower GST run rate poses a risk to FY19 tax collection and to fiscal deficit. This may keep bond yields firm thereby putting pressure on the price-earnings (P/E) multiples.

This is because as bond yields increase, the discount rate applied by investors to arrive at the current value of future earnings of companies also increases; this in turn reduces the fair value of stocks.

Based on the budgeted tax collection for the next fiscal, the GST monthly run-rate should be around Rs 1.12 lakh crore. This implies nearly 28 per cent increase over the current monthly run rate. Such a higher jump is expected following the implementation of E-way bill and invoice matching. According to some economists, the government expects total tax collection of Rs 13.4 lakh crore from GST.

CLSA said in note that weak GST collection may pose a risk to FY19 tax collection and expects a downside risk of 50-60 basis points to fiscal deficit. Kotak Institutional Equities believe that fiscal deficit may be 3.5 per cent compared with budget estimate of 3.3 per cent without any commensurate adjustments on other budgetary revenues and expenditure based on the recent GST collections.

The 10-year Indian bond yield has firmed up 43 basis points to 7.76 per cent from 7.32 per cent since the beginning of the current year. In the past eight months, bond yield has increased by 130 basis points.

Before the recent fall, the increase in the equity benchmark Nifty 50 index was largely driven by the expansion in P/Es amid benign bond yield. The Nifty’s oneyear projected P/E increased to 18.6 from 15 times in less than one and a half years. However, concerns over fiscal deficit may limit the upside in the P/E.



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