Indian Indices Pare Early Gains

Mon, 22 Aug 11:30 am

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After opening the day marginally higher, the Indian indices registered losses and went on to trade in the negative territory. Sectoral indices are trading on a discouraging note with stocks from the pharma, auto and metal sector witnessing maximum selling pressure.

The BSE Sensex is trading down 116 points (down 0.4%) and the NSE Nifty is trading down 41 points (down 0.5%). The BSE Mid Cap index is trading down by 0.4%, while the BSE Small Cap index is trading down 0.2%. The rupee is trading at 67.19 to the US$.

As per an article in the Economic Times, state assemblies of Gujarat and Chhattisgarh are going to convene special sessions to ratify the Goods and Services Tax (GST) Bill today. As per the reports, the Bill is going to be introduced in the Gujarat State Assembly today. Further, a discussion and voting on it, if required, will take place on the second day. Apart from this, a one-day session of the state assembly is going to discuss the GST Bill in Chhattisgarh.

The bill could be ratified unanimously in both of these states as the Congress has already pledged its support for the legislation. The Congress has maintained that the standard rate of GST should not exceed 18%. The party is going to hold a meeting of its MLA today before the session begins.

However, the decision on the GST rate is likely to create many hassles going forward. This is because news during the last week reported that the standard GST rate could be closer to 22% when the tax is rolled out. As per the sources, the current estimates being drawn out in North Block have worked out a GST rate of 22% that will likely be most amenable to states. Also, Kerala Finance Minister Thomas Isaac has said that many states would not agree to a rate below 22%.

While GST has been approved by most of the leading parties, it still has a few hurdles to go through. Half the states still need to approve the legislation. And the GST council, a very important part of the process, will also need to be set up. It will be the job of the council, which will be two-thirds represented by the states, to decide on the GST rate after which three GST Bills (Central GST, Integrated GST, and State GST) mentioning the actual rates will be sent to Parliament and state assemblies for approval.

Vivek Kaul has written a brilliant report on GST titled GST & You: What the Media DID NOT TELL YOU About the GST. The report digs deeper into the practical implications of GST and explains the likely rates at which various goods and services will be taxed.

Moving on to the news from the global space... Bank of Japan Governor Haruhiko Kuroda announced that the central bank will not rule out deepening a cut to negative rates it introduced in February. He further said that the BOJ's negative rate policy has not reached its limit.

Along with this, the governor also said that the BOJ will also consider whether to make any changes to the 80 trillion yen per year massive asset-purchase plan once the outcome of a comprehensive assessment of its monetary policies is out in September.

The bank had first introduced negative interest rates in January this year. The bank stunned markets in January when it set a minus 0.1% rate on some deposits that banks place at the central bank. The move was introduced on hopes that it would encourage banks to lend more and thereby spur spending and inflation. However, none of these expected development is seen as of yet.

Also, the bank had recently decided on a modest dose of monetary stimulus. The central bank said that it would buy 6 trillion yen (US$ 58 billion) worth of exchange traded stock funds annually. This was against 3.3 trillion yen previously.

One must note that the BOJ at present is printing 80 trillion yen (US$750 billion) a year to stimulate inflation after decades of deflation and stagnant growth. Despite all these measures, the inflationary expectations appear to be weakening. An entry in Vivek Kaul's Diary explains how Japan became a giant laboratory experiment for novel monetary policies.

We've written about the ill-effects of low interest rates and central bank policies many times before. Bill Bonner, for instance, recently explained what it takes to survive in an era of low interest rates. In that same vein, Asad Dossani, editor of Daily Profit Hunter, explained why it's better to focus on profiting from central bank measures, instead of trying to explain or criticise them.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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