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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Market should fall 648 Points as a result of Super Gain Tax

Market should fall 648 Points as a result of Super Gain Tax

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Spoon


Senior Equity Analytic
Senior Equity Analytic
You have failed to indicate the many assumptions you've made for this calculation

1) You assume the market cap or weightage assigned for each company to derive the ASPI is equal for every company and that every company will be equally affected. = This is because you have applied 18% on the ASPI instead of the ASPI's components.

2) You assume that the every company is subject to the effects of the super gains tax. = This is because you have applied 18% on the ASPI instead of the ASPI's components.

3) You assume all industry PERs average to 20 (or 10). Using an average with high statistical outliers will produce unreliable results. = This is because you use a PER of 20 (or 10) in your calculations.

4) You fail to take account of the one-time tax policy reasoning.

5) You do not factor in the ability of companies to increase their leverage in order to pay lower tax amounts (as the tax is bottom line based and not top line based).

6) You assume prices will reduce proportionately to earnings. This is because you multiply the tax amount by the PER to calculate the loss in market capitalization.

I hope you don't see this as me criticizing your formula. It's almost impossible to factor in the assumptions that you've made.

I do however believe, it is important that you MENTION these assumptions before attempting to scare the entire forum.

And with that, PLEASE INVEST ON VALUE AND NOT SPECULATIVELY.

Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Spoon, Thanks for detailing my assumptions, which I should have done.

I am aware it is one off tax. But since my share valuations are done on PER basis with FY 2015 Forward earning, full affect of Super Tax would be felt immediately. But I do agree it will not have the same affect in FY 2016. But 2016 has many other variable that one wouldn't forsee now.

Spoon


Senior Equity Analytic
Senior Equity Analytic
@Quibit wrote:Spoon, Thanks for detailing my assumptions, which I should have done.

I am aware it is one off tax. But since my share valuations are done on PER basis with FY 2015 Forward earning, full affect of Super Tax would be felt immediately. But I do agree it will not have the same affect in FY 2016. But 2016 has many other variable that one wouldn't forsee now.

Completely understandable. It's almost impossible to factor in the assumptions that you've made into the calculation without using probabilities that would produce several ASPI numerics and, in my opinion, erode the usability and simplicity of your prediction.

mendis86


Manager - Equity Analytics
Manager - Equity Analytics
dont calculate anytine u can see the drop aftar 2 weeks

Gainer


Associate Director - Equity Analytics
Associate Director - Equity Analytics
Good news possible and highly expecting they will remove the super gain tax after the today market fall.

From monday bull is ready.

mendis86


Manager - Equity Analytics
Manager - Equity Analytics
if super gan tax removed how they balance the badjet

EquityChamp

EquityChamp
Moderator
Moderator
@Quibit wrote:What would be final effect on the Market cap. I have calculated below.

Super Gain Tax =LKR 27bn
Market PER= 20 PER
Impact to Market Capitalisation:
LKR 27Bn X 20 PER
LKR 540 billion

You can also calculate the expected fall:
Current market cap =  LKR 3,000 Billion
Impact: LKR 540 Billion
% Impact = 540/3000
18%

Market should fall By 18%
Current Market ASI : 7200
Expected Fall: 1296 Points
Final ASI after adjustment : 6000

If we take a market PER of 10, then the market should fall 648 Points (ASI 6728) as a result of this tax.

(This is a theoretical calculation and therefore please do not find fault with me if it does not fall to 6000)

This holds true if the drop in this years earnings will be recuring in nature. Thsi is one time entry we are arguing about. market will adjust to this within few days then it will look for future trend.
What will be the future macroeconomic factors that can have an impact to the corporates. Can we expect an upward pressure on inflation with all these reductions. Jan inflation is already shows a reduction. then can the interest rates move up drastically. The government is planning to reduce expenditure on infrastructure projects so will the borrowings go high as in the past.

Looking at the new proposals and gazzets in issue I can spot 3 counters where certen uncertinies with regard to future cash flows.
JKH - due to he cancellation of casino licence and the impact on Waterfront project
DIAL - The waive off of telecommunication levy on reloads and its impact on margins
CTC - 60% pictorial impacts regulation increased to 80%

Other than these three counters rest should be ok. So the uncertainity will move the market along these counters till a clear diretion is given.

If we look at the market I feel there is a further room for market decline but it should stabilize between 6900-7000 as technical graphs show great resistance there.

If it falls from there the next level is at 6600 but it is highly unlikely to reach that deep.

VALUEPICK

VALUEPICK
Expert
Expert
@Quibit wrote:What would be final effect on the Market cap. I have calculated below.

Super Gain Tax =LKR 27bn
Market PER= 20 PER
Impact to Market Capitalisation:
LKR 27Bn X 20 PER
LKR 540 billion

You can also calculate the expected fall:
Current market cap =  LKR 3,000 Billion
Impact: LKR 540 Billion
% Impact = 540/3000
18%

Market should fall By 18%
Current Market ASI : 7200
Expected Fall: 1296 Points
Final ASI after adjustment : 6000

If we take a market PER of 10, then the market should fall 648 Points (ASI 6728) as a result of this tax.

(This is a theoretical calculation and therefore please do not find fault with me if it does not fall to 6000)

Thank you for your analysis.

CSE is due for small and mid cap rally.  Investors and traders found reason to sell overvalued stocks. Market will become very attractive at the end of this sell off. Few stocks had massive rally during last 14 months. Now it is time for new stocks and sectors with favourable industrial and business environment.  It is also time to rotate stocks and sectors. There are value stocks with growth potential. Stocks with simple business are very safe.

Are people going to stop eating and drinking due to short term issues? Will tourist stay away from coming to Sri-Lanka? Will they stop exporting tea, rubber and coconut? Answer is no. Companies in above industries will have demand for their products and services for the next two decades. Consumer staples and consumer discretionary stocks are the best bet in the current market situation. There will demand for other stocks once they come down to very attractive level.

Some of the following consumer staples and discretionary stocks went up today in a heavy selling day.

ABAN,MPRH,TAFL,BFL,BBH,BLUE,ELPL,KGAL,KOTA,LLMP,ODEL,UML,WATA

UDPL, GRAN, YORK were flat.

nimantha80


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
200 done Very Happy

nalban


Manager - Equity Analytics
Manager - Equity Analytics
Boom Boom cse kattiya pattha palathe wath na,
May have got posts in the Govt for all the propaganda done here at the expense of our hard earned money.

tha


Senior Equity Analytic
Senior Equity Analytic
Dear. Dont you all understand the basics of ecconomy. When a government is giving relief like this it will obviously increase the purchasing power so that there will be more business created in the market as well as increase in disposable income for extra savings and invesments including in the capital market. So how come it will affect cse????? This is pure diversion...pls dont get caught. Most of the finance companies and banks will be benefited from smaller vehicle leasings like PLC UBC PABC etc.

Vptilak


Manager - Equity Analytics
Manager - Equity Analytics
@mendis86 wrote:how say unp govement good for economy

This is not pure UNP Govt. This is a interim govt of a group of 49 political and social organizations.95% of interim budget proposals were stated in My3 prathipaththi prakasaya. May be Super gain tax and few others were not mentioned. If that was there My3 would have got More than 65 laks.
Dont forget under previous ruling HILTON and Pelawatta took over without paying a single cent . Those two companies itself worth more than 27 billion. But they took over around 20 institutions including Hilton and Pelawatta and  total value would have been exceeded 100 billion. Is that the good governance? How many small and medium scale investors are still suffering without receiving compensation?

Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
648 expected drop also seems in with 6600 technical support level. More 100 day surprises will make it hard for any possible support. Time to select sleeping beauties!!

Sunnyside


Senior Equity Analytic
Senior Equity Analytic
@nalban Macha, if you are putting your hard earned money in the stock exchange, think a bit rationally about people who said boom boom cse, specially 3 weeks after a government change whilst the country is in transition. what were you really expecting??? its really hard to understanding the thinking lol market wont "crash" as people here like to suggest. but foundation has been set for a more sustainable healthier growth.. in coming months, firms will start reaping the fuel pricing benefit in full, consumer spending will increase, consumer good manufacturers will see demand, cement price decrease will support the construction industry... but please dont expect overnight magic.

anges


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
calculation is very good ! i feel it might go down below 6000 due to panic selling and negative sentiment ! but should recover in the long term !

Teller

Teller
Moderator
Moderator
Of course,we can see much foreigners selling in coming weeks, unstable political situation,(parliment to dissolve at any time),NO POLICY at all.


_________________




Teller said is said..

gamaya


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Smile There was a net foreign buy yesterday.

Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
400 points already wiped out from the index and 250 more points to go?

Senior Citizen

Senior Citizen
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@Quibit wrote:400 points already wiped out from the index and 250 more points to go?

Quit I just give an award for your prediction if the stocks.
Where are all the Elite experts who ganged against you for making a bold statement?

And I told earlier, one has to say what has to be said.
Even if there are minor deflections and misses the direction is accurate.

Keep on the good work Quibit! Very Happy

VALUEPICK

VALUEPICK
Expert
Expert
@Quibit wrote:648 expected drop also seems in with 6600 technical support level. More 100 day surprises will make it hard for any possible support. Time to select sleeping beauties!!

I agree with you about small, mid and large sleeping beauties in the market. Investors and traders overlooked those shares especially in 2014. Everybody make mistakes even top global bankers and top analysts globally. Didn’t they say that gold is going to go to $ 10,000 and Oil going to $200? Now gold is trading around $1200 level and oil $45. Because of them all oil and gold hedgers and airlines etc get into trouble. We will slowly study these beauties in the market.

I believe institutional investors may start to buy value stocks in the future especially in most promising areas in the mid and long term basis such as food and farming, hotels and plantations. Both governments like those areas. Look at Asian population. What do they need mostly? All types of food and all type of hot and other drinks, health, education, travelling and infrastructure. It is time to do our own study to pick real beauties in the market.

Both governments are business and investment friendly. Once national government forms in June market may break not only 8000 but also 10,000 most probably in 2016. When national government forms we will see some of the well experienced people in the cabinet.

Senior Citizen

Senior Citizen
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@VALUEPICK wrote:
@Quibit wrote:648 expected drop also seems in with 6600 technical support level. More 100 day surprises will make it hard for any possible support. Time to select sleeping beauties!!

I agree with you about small, mid and large sleeping beauties in the market. Investors and traders overlooked those shares especially in 2014. Everybody make mistakes even top global bankers and top analysts globally. Didn’t they say that gold is going to go to $ 10,000 and Oil going to $200? Now gold is trading around $1200 level and oil $45. Because of them all oil and gold hedgers and airlines etc get into trouble. We will slowly study these beauties in the market.

I believe institutional investors may start to buy value stocks in the future especially in most promising areas in the mid and long term basis such as food and farming, hotels and plantations. Both governments like those areas. Look at Asian population. What do they need mostly? All types of food and all type of hot and other drinks, health, education, travelling and infrastructure. It is time to do our own study to pick real beauties in the market.

Both governments are business and investment friendly. Once national government forms in June market may break not only 8000 but also 10,000 most probably in 2016. When national government forms we will see some of the well experienced people in the cabinet.

Happy dreams chum!

Very positive attitude especially in these critical times.
We need some of you to soothe us and encourage us to linger in this market a bit more.

Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
@Senior Citizen wrote:
@Quibit wrote:400 points already wiped out from the index and 250 more points to go?

Quit I just give an award for your prediction if the stocks.
Where are all the Elite experts who ganged against you for making a bold statement?

And I told earlier, one has to say what has to be said.
Even if there are minor deflections and misses the direction is accurate.

Keep on the good work Quibit! Very Happy

Hope this will be an eye opener for all experts to come back and work together for the benefit of the stock trading community.

VALUEPICK

VALUEPICK
Expert
Expert
Tomorrow is a very crucial day. 7000 is very important psychological barrier.We can expect some bounce back tomorrow. If it go below 7000 then it can drop to around 6900.

EquityChamp

EquityChamp
Moderator
Moderator
Tomorrow and the day after are holidays. Market can cool down for a bit.

Jiggysaurus

Jiggysaurus
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@VALUEPICK wrote:Tomorrow is a very crucial day. 7000 is very important psychological barrier.We can expect some bounce back tomorrow. If it go below 7000  then it can drop to around 6900.

Defa very valuable prediction by valueprick. When we look at the index tomorrow (Tuesday) we will see that it is flat and value prick will be correct.

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