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Modi's tax to spur 1,000 new listings

Wednesday, May 31, 2017 - 13:35

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India's introduction of a single nationwide goods and services tax may have an unexpected consequence: prompting more companies to sell shares to the public.

[MUMBAI] India's introduction of a single nationwide goods and services tax may have an unexpected consequence: prompting more companies to sell shares to the public.

That's the view of Ashishkumar Chauhan, chief executive officer of BSE Ltd, the operator of the Bombay Stock Exchange. He says smaller firms that become tax-compliant due to the levy, scheduled for implementation on July 1, will be more inclined to go public because they'll no longer have anything to hide. Some 1,000 companies will list on his bourse over the next four years, he estimates.

"We have only scratched the surface," the head of the Deutsche Boerse AG-backed BSE said in an interview in the old business district of Mumbai. Some 74 companies raised 276 billion rupees (S$5.9 billion) through first-time share sales on the BSE in the year ended March, the highest since 2010, according to the exchange. "We expect a huge spurt in listings." Investors and analysts have been debating how the country's biggest tax overhaul since independence in 1947 will impact the country's markets, with some predicting that the GST will face teething problems. While the levy is widely projected to boost government revenue and increase the ease of doing business in the world's largest democracy, attention is also focusing on less obvious outcomes of Prime Minister Narendra Modi's policy.

"A lot of things are going to happen - we don't know what," Raamdeo Agrawal, joint managing director at Motilal Oswal Financial Services Ltd, said in an interview in Mumbai. "But it is a huge positive development. It will have short-term hiccups for six months or so. But once it is done and people have accepted it, then the control of the economy will become far better." The company's money-management unit has $3.6 billion in assets.

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Once the landmark tax takes effect, an estimated 51 million smaller firms that currently do much of their business in cash will have to keep digital records, making it harder for them to under-report revenue. That means there will no longer be an incentive for them to avoid listing, Mr Chauhan said.

BSE aims to help companies raise US$100 billion annually over the next four years from initial and secondary offerings of stocks and bonds, up from the present US$30 billion a year, Mr Chauhan, 49, said. The exchange, which traces its roots to the 1850s, is also seeking to increase its registered investor base to 100 million people in five years from the present 34 million, he said.

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