Q1FY18: GST impact on India Inc

The FY18 began on an uneasy note with the announcement of GST rates on various items in May 2017. All companies, ranging from e-commerce platforms and car manufacturers to apparel retailers and phone manufacturers, started offering attractive schemes to their customers to dispose off their stockpile of inventories. The schemes were valid until June 30, a day before the GST kicks in.

The business community expects change in future prices, stringency of government laws and tax complexity. There is lack of clarity on what will happen to the old stock, i.e. the stock that was bought before the GST but needs to be sold after its implementation.

According to Shrikant Akolkar, Sr. Equity Research Analyst-Auto, Angel Broking Pvt. Ltd.,"Due to increasing tax compliance, shift from unorganised to organised sector is expected to play out in several sectors like building materials, battery manufacturing, consumer durables, electric equipments, etc. "

A significant slowdown has been observed in several sectors over the past month on account of liquidation of large inventories that could last beyond Q1FY18. The FMCG, auto ancillaries after market sales, pharmaceuticals, plywood and tiles are most impacted, while auto OEMs and cement seem to be least impacted. The scenario is expected to normalise only from Q3FY18.

Talking about the automobile sector, in the upcoming period, the GST impact is expected to be neutral for small cars and two-wheelers, while SUVs and bigger cars are likely to become cheaper.

Sectors such as FMCG (hair oil, soap and toothpaste), SUVs, adhesives and DTH will see a decline in tax rates, while luxury hotels, tractors, fertilisers, luggage and aerated drinks will attract higher tax rates.

Till now, the equity markets have been reacting positively. But now, as the roll-out date approaches near, equity investors have become "nervous". However, over the long term, GST will surely yield good results and the long-term growth story of India still looks promising.