GST, Demonetisation To Hurt Earnings For Two To Three Quarters: Bank of America Merrill Lynch
The impact of GST will be felt in the first two quarters of the financial year 2017-18.
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The fallout of demonetisation and the introduction of Goods and Service Tax (GST) will be beneficial for India in the long run, but will have a "disruptive" impact on earnings for the next two to three quarters, according to Bank of America Merrill Lynch.
The pressure on earnings from demonetisation is expected to be felt over the third and fourth quarters of the current financial year, the brokerage house said in its India equity strategy report. The impact of GST, brought about by the change in consumer behaviour and de-stocking, will be felt in the first two quarters of the financial year 2017-18, Bank of America Merrill Lynch added.
However, the extent of disruption from GST will partly depend upon the final rate of taxes, which the GST Council is expected to decide at its February 18 meeting. The categorisation of various goods and services into different slabs can be a source of volatility, warned the brokerage.
While the government has indicated it will categorize most goods/services in slabs closest to current rates, the market had assumed significant gains for consumer/manufacturing firms. Investors should watch out for entries into penal slabs or slabs for consumer categories, autos, cements and some of the services.Bank of America Merrill Lynch’s January 17 Report
GST is now expected to be rolled out from July 1, 2017, after the impasse between the states and the Centre over dual control was resolved on January 16. States will scrutinise 90 percent of the assessees with a turnover of less than Rs 1.5 crore per annum, while the Centre will take care of the remaining 10 percent. As for the bracket above Rs 1.5 crore per annum, the Centre and the states will share jurisdiction equally.
Longer-Term Impact
The shift from the unorganised to the organised sector is expected to pick up speed over the next three years. S&P BSE Sensex companies will showcase earnings growth of 12 percent during the financial year 2017-18 and 14 percent during the financial year 2018-19, according to the brokerage.