Is It Apt To Foray Into The Indian Stock Market?: An Analysis
Zacks Investment Research | Sep 19, 2019 11:17PM ET
The Indian stock market has taken a beating ever since the country’s new budget was presented. This is predominantly because of the foreign portfolio outflows that the Indian stock market witnessed a sharp sell-off. But why the foreign portfolio investors (FPIs) are lowering their equity investments remains a valid question. It’s because in the new budget, the tax surcharge on FPIs was increased, which compelled them to turn net sellers of late. Lest we forget, the FPIs had been net buyers in the Indian stock market until June.
Simultaneously, one may wonder that higher tax surcharge was applicable to the affluent, then how are the FPIs getting affected? The reason for this is that many FPIs are still not registered as a company in India. Instead, they pay their taxes under a taxation concept called Association of Persons (AOP). Needless to say, AOPs are considered individuals per the Indian law, and the new surcharges are therefore pertinent to the FPIs as well.
What’s more disconcerting is that Finance Minister Nirmala Sitharaman was yet to drop any hint about withdrawing such a proposal to raise taxes any time soon. In fact, the harsh truth is that this kind of budget proposition isn’t boosting economic growth.
Talking about economic expansion, India’s GDP growth rate came in at 6.8% for 2018-19, the slowest growth rate since 2014-15. The automobile sector is now feeling the heat with nearly 2.30 lakh jobs being slashed. The number of unsold houses saw a spurt recently and that doesn’t look promising for the real estate sector. To top it all, FMCG companies registered a decrease in volume growth for the second quarter this year. The Reserve Bank of India’s (RBI) recent data doesn’t present an encouraging picture either. RBI consumer confidence survey exposed a bearish mass sentiment as uncertainty about the general well-being prevailed in July with jobs being scarce and economic growth remaining lackluster.
Another widely known fact is that the Indian economy is in bad shape as it is intermingled with the global economy. A slew of factors has been ailing the global economy of late, which is now on the cusp of a crippling slowdown.
Nevertheless, it’s still not an appropriate hour to shun the Indian stock market now. This is primarily because the market recently soared to its maximum in almost a decade on the expectations of better corporate profits, courtesy of the government slashing the corporate tax rates. Finally, the government of India scrapped the huge surcharge on the capital gains owing to the sale of equity share announced earlier in the budget. Sitharaman announced a 1.45-lakh crore rupee stimulus package in order to pep up the economy that is grappling with slowdown issues. The Finance ministry has trimmed the corporate tax rate to 22% while the new manufacturing organizations will have to pay even a lower corporate tax rate of 15%.
Prime Minister Narendra Modi added that “the step to cut corporate tax is historic. It will give a great stimulus to #MakeInIndia, attract private investment from across the globe, improve competitiveness of our private sector, create more jobs and result in a win-win for 130 crore Indians.”
Here Are Some Indian Stocks to Watch Out for
Banking on the aforesaid positives, here are the five Indian stocks you should keep an eye on. These stocks will certainly gain from the government’s strike on pessimism in the economy. The government’s recent stimulus package will certainly provide enough surpluses in the hands of the corporate entities to make further investments and ease liquidity concerns.
Dr. Reddy’s Laboratories Limited (NYSE:RDY) operates as an integrated pharmaceutical company. It runs through three segments: Global Generics, Pharmaceutical Services and Active Ingredients (PSAI), and Proprietary Products. Dr. Reddy's Laboratories Limited was founded in 1984 and is headquartered in Hyderabad, India.
The company sports a Zacks Rank #1 (Strong Buy) now. The Zacks Consensus Estimate for current-quarter earnings has moved 21.9% north in the past 60 days. The company’s expected earnings growth rate for the current year is 25.6% compared with the Zacks Investment Research
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