Can GST Trigger A Record-Setting Rally On Dalal Street? Analysts Divided

Indian stock markets are on a roll, with the BSE Sensex and the broader Nifty50 rising for five straight months. The Nifty has returned 25 per cent gains since February 29 and is just 500 points off from its record high hit in March 2015.

The rally in Indian markets has been based on three broad themes - recovery in corporate earnings, normal monsoon rains and the passage of the Goods and Services Tax (GST). Corporate earnings have been mixed in the June quarter, but they are expected to recover in the second half of the current fiscal year.

Monsoon rains are on track, easing the pressure on rural economy, after back-to-back droughts. And if all goes well, the GST could be passed in Rajya Sabha tomorrow.

The GST will transform India into a unified market and its implementation could boost the country's GDP by 2 per cent, analysts say. Sectors such as automobiles, consumer staples and consumer durables are likely to be positively impacted, though most of the advantages are likely to accrue in the medium to long term, they added.

"In the short term, the advantages may not be as obvious. Unless the tax base increases, there is unlikely to be a significant impact on the government's revenues," said Kotak Institutional Equities in a report published last week.

Can the passage of GST add legs to the rally? Analysts are clearly divided. According to some, markets may not rise much after the passage of the landmark bill since the outcome has been priced in.

"Markets are looking frothy. There might be a 50-100 point pop-up followed by profit taking," said Sanjeev Bhasin, executive VP (market & corporate affairs) at domestic brokerage IIFL.

"The second half of this month could see a sharp selloff as foreign investors are likely to book profit," he added.

Jayant Manglik, president (retail distribution) at Religare Securities, also said that markets have "somewhat" priced in the expected clearance of the GST Bill and thus favourable outcome might not trigger a strong surge ahead.

Fund manager Vivek Pandey said the Nifty will be volatile tomorrow. Foreign institutional investors will use the passage of GST Bill to book profits or cut longs, he added.

However, many other analysts expect the liquidity-driven rally in markets to continue. Foreign institutional investors have pumped in around $5 billion in local equities year-to-date and with more and more central banks taking the easy route to boost growth, flows are unlikely to stop any time soon, analysts say.

Sahil Kapoor of Edelweiss Securities said he is betting on the Nifty to hit 9,000 by September, a level last seen in March 2015.