Monsoon session: Non-passage of GST is unlikely to rock markets

GST is one of the positive factors, but not necessarily the only factor that is driving the markets, analysts say

Markets are keenly eyeing the progress regarding the passage of the Goods and Services Tax (GST) bill in the upcoming monsoon session of Parliament. While the passage will be sentimentally positive for the markets, any negative development can only trigger a knee-jerk reaction from the markets with a limited downside from the current levels, analysts say.

According to reports, apart from GST, there are 25 bills that form a part of the legislative agenda. Key among them include The Factories (Amendment) Bill, 2014, The Electricity (Amendment) Bill, 2014, The Lok Pal and Lokayuktas and Other Related Laws (Amendment) Bill, 2014, The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2015 , and The Benami Transactions (Prohibition) Amendment Bill, 2015.

Experts say the AIADMK will play a pivotal role in the passage of the GST bill. Even if Congress votes against the bill, support from AIADMK either through abstaining or voting in favour of the bill would help clear the GST bill in Rajya Sabha.

"If GST is passed in Rajya Sabha, it will easily be cleared by the mandated 50% states as 20 out of 29 states and two union territories are ruled by either NDA or with states in favour of the GST bill. In such a scenario, GST rollout will not be an issue once the Rajya Sabha clears the bill," point out Amit Gupta, Raj Deepak Singh and Sanjay Manyal of ICICI Securities in a recent co-authored report.

Since the presentation of the Budget in February when the sentiment turned positive for the overall market, the S&P BSE Sensex and the Nifty 50 indices have gained around 20% and 21% respectively, while the S&P BSE Mid-cap index has surged around 26% during this period.

Analysts say the upbeat sentiment is unlikely to change in a hurry given the favourable domestic cues even if the GST bill is not cleared in the upcoming Parliament session, unless there are negative global headwinds. Though the non-passage could trigger a knee-jerk reaction from the markets, a sharp correction is ruled out.

G. Chokkalingam, founder & managing director, Equinomics Research & Advisory, explains: "Though the markets expect the GST bill to be passed in the coming monsoon session of Parliament, I expect the bill will be cleared next year, only after the state elections are over and if the NDA can improve its overall tally in the Rajya Sabha. In case the GST bill doesn't go through in this session, there might be a knee-jerk reaction from the markets, which can correct 2% - 3% as a result. While there may be some disappointment, a big crash is ruled out."

An overall improvement in tax collections, good monsoon, healthy foreign flows and a hope of improvement in corporate earnings are some of the factors analysts list that are currently fuelling the market rally in the absence of negative global cues.

"GST is one of the positive factors, but not necessarily the only factor that is driving the markets. Though the markets expect the bill to be passed in the monsoon session, even if it doesn't sail through, the markets will take it in its stride. The downside will be limited in case the Parliament doesn't approve the bill in this session," said Jagannadham Thunuguntla, head of fundamental research at Karvy.

Going ahead, Chokkalingam expects the next leg of the up move to be driven by large-caps. He expects the S&P BSE Sensex and the Nifty 50 to hit 30,000 and 9,200 levels, respectively by December. If the monsoon does not negatively surprise in July and August, these levels could be breached October 2016, he says.