Bajaj Finance, Bajaj Finserv other financial services shares rally on expectations of lower GST

Shares of Bajaj Finance, Bajaj Finserv, Cholamandalam Investment and Finance, ICICI Lombard General Insurance, HDFC AMC, ICICI Pru Life, SBI Life, SBI Cards and other financial services shares came under buying interest on Monday, August 18, as analysts expect rationalisation of goods and services tax (GST) rates to significantly lower GST applied on service fees levied by these companies.

Moreover, the move of GST rationalisation is likely to indirectly benefit financial services as cost of automobiles, air conditioners and other white goods which currently attract higher tax rates is likely to come down thereby leading to price reduction and higher demand for these products and financial services company will gain business share by financing these products, analysts said.

The index of financial services shares on the National Stock Exchange, NIFTY Financial Services index, rose as much as 1.92%.

"See a good chance that GST on cement, 2-wheelers and air conditioners may go down to 18% (currently 28%). Certain other potential reductions may include insurance, hybrid cars, processed foods, garments, footwear, etc and possible reductions on passenger cars cannot be ruled out," global brokerage Jefferies said in a report.

Prime Minister Narendra Modi on Sunday said the Centre has circulated the draft of the next-generation GST reforms among states and sought their cooperation to implement the proposal before Diwali.

PM Modi had announced the proposal to reform the GST law in his Independence Day speech.

As per reports central government has proposed two tax rates of 5% and 18% in the revamped GST, which is likely to replace the current indirect tax regime by Diwali this year, highly placed sources told news agency Press Trust of India (PTI).

The centre has sent its proposal, which removes 12 and 28% slabs, to the panel of state finance ministers on GST rate rationalisation. They will now discuss it and place it before the GST Council. The council is expected to meet next month.

While nil or 0% GST is charged on essential food items, 5% is charged on daily use items, 12% on standard goods, 18% on electronics and services and 28% on luxury and sin goods, the revamped GST regime will have two slabs plus a special rate of 40% for luxury and sin goods.