The coming service tax tsunami

The service sector accounts for 57% of India’s GDP (Source: GoI)

The Govt of India is all set to tax the living daylights of this sector.

In the last budget, Service Tax regime changed in a dramatic fashion-from a positive list it changed to  a negative list.So now all services (other than those in the negative list) will be taxed.

The Service Tax was also hiked from 10% to 12%- a hike of 20%

The govt intends to introduce the Goods & Services Tax (GST) soon in the next 12-18 months.Once the GST comes to force, the service tax will be hiked up to 16% (see here)

So effectively, in a span of two years, the service tax will be hiked from 10% to 16% an increase of 60%

From an investment perspective, this implies a high inflation regime and a negative outlook for the service sector such as hospitality, housing etc

Linkfest: April 10, 2012

Some stuff I am reading this morning:

Loop Telecom to shut down, seeks 750 M$ damages from the government (Mint)

Harshad Mehta like scam at NCDEX (SuchetaDalal)

China faces timebomb of ageing population (Guardian)

The Warren Buffett Cult Vs The Gold Cult (DailyReckoning)

Why a 1$ CEO costs much more than 1$ (Footnoted)

Grandfather wills property to grandkids, enraged father kills them (FinancialExpress)

MCap to GDP Ratio

The Market Cap to GDP ratio is used sometimes as an indicator to check the valuations of the markets.

In the Indian context, (using BSE valuations) this ratio really took off  after 2002-03.(source:SEBI)

Is this indicator any good?

In 2000, according to statistics at the World Bank the market cap to GDP ratio for the U.S. was 153%. Subsequently, the dot com bubble burst.

However, in 2003, the ratio was around 130%, but the market rally continued over the next few years.( see here)

So maybe it is useful but not completely reliable.
To misquote/change of an old joke of Ben Graham:
“The correct attitude of the investor toward the MarketCap to GDP ratio might well be that of a man toward his wife. He shouldn’t pay too much attention to what the lady says, but he can’t afford to ignore it entirely !!”


Guest Post @ The Reformed Broker

Joshua Brown of The Reformed Broker has published my guest post “10 things you need to know about India’s Stock Market

TRB is one of the most popular financial blogs in the US and it is a great honor and privilege to have published there.

Josh has written a book “Backstage Wall Street”  which gives us an insider account of the shenanigans that happen in Wall Street.An excerpt of the book can be read here

Linkfest: April 09, 2012

Some stuff I am reading this morning:

India’s tax plan troubles foreign investors (Nytimes)

India’s Food Security Bill to increase fiscal deficit by 1.2 Trillion Rupees (Mint)

Goa Grand Hyatt in green trouble (BusinessStandard)

Was Madhu Kannan a failure at BSE? (SuchetaDalal)

Can fortune tellers predict stock price movements? (BusinessToday)

Ghosts in the Newsroom:Washington Post’s business strategy (VanityFair)

A devastating critique of Vijay Mallya (Kaipullai)