Sensex Trades Marginally Higher; Telecom Stocks Witness Buying

Thu, 19 Jan 11:30 am

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After opening the day on a flat note, the Indian share markets have continued to trade marginally higher. Sectoral indices are trading on a positive note with stocks in the telecom sector, energy sector and consumer durables sector witnessing maximum buying interest.

The BSE Sensex is trading up 80 points (up 0.3%) and the NSE Nifty is trading up 20 points (up 0.2%). The BSE Mid Cap index is trading up by 0.4%, while the BSE Small Cap index is trading up by around 0.3%. The rupee is trading at 68.19 to the US$.

All eyes in the global markets are set on China's GDP data report which is will be released tomorrow. As per estimates, China's gross domestic product (GDP) for the fourth quarter is pegged at 6.7%. If this comes true, it would be noted as the slowest growth of Chinese economy in more than a quarter of a century.

Apart from that, China has admitted faking its economic data for years. As per the news, a Chinese official has admitted his province falsified its economic data for years. Speaking at a legislative meeting on Tuesday, Liaoning's governor Chen Qiufa admitted that from 2011 to 2014, economic data from the province's cities and counties had been plagued with false statistics. The news validates long-held suspicions that China has been cooking the books for years.

So if you don't trust the numbers coming in from China, it's certainly a valid concern.

A look at the current situation of the Chinese economy shows that the country's trade has flagged in recent months. Exports have dropped in dollar terms. Furthermore, the prospect of an interest rate hike in the US has led to further declines in the yuan's value. Economists are of the view that continuing stimulus measures by the central bank are masking the deeper problems of industrial overcapacity and high levels of corporate debt in China.

However, despite the above concerns, one of the recent issues of Vivek Kaul's Inner Circle (requires subscription) states that there are plenty of legs left for the dragon economy. The issue points out some positive signs emerging in the Chinese economy, without undermining the longer term risks and challenges.

Regarding stock markets, many participants are worried that China and its slowing economy will bring more concerns for Indian markets. However, a crash can be an ideal time to bet on solid Indian companies that are well-shielded from any adverse developments in China. In our view, these companies can turn into bargain buying opportunities.

In another news update, as per an article in the Financial Express, along with a cut in the corporate tax rate in the upcoming Budget, the government is also said to make a similar reduction in minimum alternative tax (MAT) rate. This is to keep the differential tax treatment intact for zero-tax firms. Furthermore, as per the sources, there could be some change in MAT rules for computation of book profits in view of the implementation of new accounting standard - Ind-AS - by a large number of firms from April 1. Book profits are the profits on which the tax is applied.

Please note that the government is aiming to bring down the corporate tax rate to 25% over four years beginning this year. A reduction in rates here will mean rise in private investments.

As of now, our corporate tax rate stands at almost 35%, which is the second highest in the world. This can be seen in the chart below:

Indian Corporate Tax Rate Amongst Highest in the World

As we look towards the upcoming Union Budget for 2017-18, what we want is to see the government getting rid of the complicated layers of exemptions, and to have a simple and uniform tax rate which is lower than the current one.

This will not only make for better tax compliance by taxpayers, but also make it easier for the tax department to administer appropriate tax collections as well as reduce tax litigation.

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