The one big positive news which came in today was that of advance tax collections. This is the time of the year when corporate's start paying the advance taxes for the fiscal 2008-09. Typically, the collection figures of Q1 and Q2 gives an indication of the way in which the cookie will crumble in the coming months. And going by the writing on the wall right now, looks like things are indeed not as bad as they look right now.
As per data released by the Revenue Department, the advance tax pay-out of India Inc is estimated to have recorded a 30% increase for the June 15 instalment on a year-on-year basis. ONGC is the number one tax payer and PSUs continue to dominate the list of the top 10 tax payers like always. Private sector saw Reliance Industries, Tata Steel and ICICI Bank. Infact ICICI Bank, which did not find a place in the final list of top ten advance taxpayers’ for 2007-08, has returned to the top ten list in the June 15 instalment with an advance tax payment of Rs 340 crore (Rs 250 crore).
Why so much hullabaloo about advance tax figures, right? Advance tax is paid every three months, four times a year and in four instalments:
On or before the 15th June --- Not less than fifteen per cent.
On or before the 15th September--- Not less than forty-five per cent, as reduced by the amount, if any, paid in the first instalment.
On or before the 15th December --- Not less than seventy-five per cent, as reduced by the first and second instalments.
On or before the 15th March --- which is 100%, as reduced by the amount paid in the earlier instalments.
And once the advance taxation is declared it will soon be followed by the first quarter (Q1) results of FY08-09. These will start streaming in by July 10th and that in the true sense will dictate the market sentiments. That has been the case till now but this year, the prices of crude will also to a large extent dictate the market trends. This year, given the unprecedented rise of crude prices and its impact on economic growth and inflation, the indices will sway to the tune of the crude prices. If crude manages to settle down lower due to increased supply by Saudi in July that will give the much needed relief to inflation and help recoup some of the lost economic growth. That will help the index settle at 14,000 levels.
When the markets fell last week, the banking stocks were beaten down to the pulp by the investors. But the advance tax figures indicate that the banking sector might actually have a very robust Q1 in current fiscal. Union Bank of India’s advance tax payment was 88% higher YoY and SBIs tax payment of Rs.663 crore for the April-June 2008 period was the highest. The IT sector has the rupee once again to its advantage and this is bound to reflect much positively for the IT companies.
The next few weeks will be tough and inflation would be in double digit but the much needed cushion would be provided by the Q1 results and the trend of the results, in the true sense would be the trigger. If the Q1 results are good then it will help hold the markets at the 14,000 levels. But if the results turn out bad, then markets could slip to 13,000 levels.
There is pain in the market right now and will continue to give pain for some more time. But the advance tax figures indicate that the long term story continues to remain good. Take the opportunity of the falling market to buy into good value stocks, with a long term perspective. If you had missed the bus earlier and were left watching others make money, then maybe this is the time for you to make up for that lost opportunity.
One bad year cannot wash away all that has been achieved till now. There is a slowdown, so use that to your advantage to build a powerful portfolio. There is always morning after a dark night, sometimes the night is longer but the morning is always there!