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FPIs are once again showing interest in the telecom stocks following expectations of long term growth after staying underweight over the past few years. The sector’s weight in the FPI equity portfolio rose by 77 basis points since the beginning of January 2024 to a record 3.5% at the end of April 2024 according to the NSDL data. The increase in the sector’s weight is the third largest after 95 basis point rise in the weight of the automobile sector and 79 basis point increase in that of the diversified sector during the period.Analysts expect a tariff increase of 10-15% after the general elections, which augurs well for telecom service providers given the rising data usage. The average revenue per user (ARPU) is likely to increase to Rs 217 in FY26 from Rs 180 in FY24. The sector revenue is expected to grow by 12% to around Rs 3.1 lakh crore ($38 billion) in the next fiscal year. In addition, the latest equity infusion by Vodafone-Idea through a Rs 18,000 crore worth follow on offer reduces the possibility of a further consolidation in the sector. These factors are attracting investors towards the sector.109931490The weightage expansion has been driven by a combination of capital appreciation and inflows in the sector. The ET Teleservices index has gained 62% over the past 12 months compared with the 19% gain in the S&P BSE Sensex. The telecom sector received FPI inflow of $1.9 billion in the past two months, about 61% of their total inflow during the period. The equity value of the telecom stocks in the FPI portfolio rose by 88% over the past 12 months to $27.5 billion, nearly double the growth in their total equity portfolio.The total weight of the FPI consumption basket rose to a record 24% year-on-year at the end of April 2024 supported by sectors including telecom, automobiles, and consumer services.

In a substantial relief for many of the holding companies in India, the Punjab & Haryana high court has stayed a circular that brought corporate guarantees under the ambit of GST, ToI reported on May 7.Corporate guarantees are given by holding companies in favour of their subsidiaries. Under this mechanism, a company, known as the guarantor, promises to pay for a loan if the borrower (in this case, subsidiaries) doesn't fulfil their obligations. This system benefits the subsidiaries in the form of reduced risk levels.The High Court, through an interim order, has stayed the implementation of the circular issued in October by the Central Board of Indirect Taxes and Customs (CBIC), ToI's report (by Lubna Kably) said. The circular in question had said that a corporate guarantee provided by a holding company to a bank or financial institution for the approval of credit facilities to its subsidiary would be considered a 'supply of service' liable to GST.The circular had additionally stated that the tax liability would occur even in cases where no payment is involved. The issue before the High Court also encompasses a challenge regarding the assessment of the value of corporate guarantees.For the time being, the stay order provides relief to India Inc., currently grappling with showcause notices and GST demands amounting to hundreds of crores. Companies facing showcause notices due to this circular now have the option to petition the High Court to dismiss them.The demands have been issued to the Indian holding company. If the holding company is located overseas, the Indian subsidiary, on whose behalf the corporate guarantee is provided, is faced with GST demands.According to industry representatives interviewed by TOI, following the issuance of the circular, the frequency of showcause notices and subsequent demands escalated. Companies across various sectors, including FMCG and infrastructure, were served with such notices.ToI reported quoting Mannat Waraich, who represented Acme Cleantech Solutions in this matter before the HC, "The interim order, which has granted a stay, will apply pan-India. The circular, which stated that corporate guarantee was a supply of service, led to a foregone conclusion on part of tax officials, that every corporate guarantee transaction (other than personal guarantee by a director) was subject to GST, without the same being tested on merits.""If a company has received a showcause notice, which is based on the circular, it should immediately approach the jurisdictional high court for quashing the same. If an order raising a demand has been issued, the company should approach the appellate authority or the high court seeking to quash it. It would be up to the quasi-judicial authorities/courts to quash the demand or keep it in abeyance," Waraich further told the newspaper.According to Sujit Ghosh, senior advocate, Supreme Court, who led the arguments for the company, "This interim order essentially seeks to enforce that we have a fundamental separation of power (under our constitutional construct) between the executive and the judicial wing of governance. The executive wing being the tax administrator (i.e. CBIC) in this case cannot fetter with the adjudicatory and appellate powers of the quasi-judicial authorities.”“We have also challenged Rule 28(2) of the CGST Rules (amended) which provides that GST at 18% will be payable on 1% of the value of the guarantee or the actual consideration, whichever is higher. These rules have also been challenged as being arbitrary, discriminatory, and confiscatory in nature,” Waraich further told ToI.