KIM ENG Securities India is of the view that proposed draft letter on Direct Tax Code is unlikely to hurt sentiments and Sensex may rally to 18000 levels.
Yesterday, the Indian equity market didn't rise in line with regional markets because of confused media reports on changes in the proposed draft for direct taxes suggesting all investors would be hurt.
We draw a distinction between short-term (less than 1 year) and long-term capital gains, and believe that the changes impact domestic institutions and retail investors more than others.
Considering most investors have short-term horizon and are prepared to pay taxes, foreign investors would be least affected because restoration of provisions of double taxation treaty agreements (DTAA) helps them shift tax incidence to their home countries, which by design is often a 'tax-free haven'.
We believe foreign inflows will continue in the short term and that the Sensex will top at 18,000. If Sensex goes to 18000, we recommend Take Profit particularly in telecom and property stocks like Bharti Airtel (BHARTI), Idea (IDEA) and DLF (DLFU) which have participated in this rally, the note said.