Advance Tax Payments... Paint a mixed Picture

Many Indian companies made their advance tax payments for 4Q FY09. The earnings indication from the tax payments seems to be a mixed bag.

Preliminary information on advance tax payments flashed on CNBC showed a general slowdown with companies from the real estate and manufacturing businesses on the other hand consumer products and financial services companies, however, bucked the trend and paid more tax than they did last year—an indication that they expect to turn higher profits.

Large manufacturing sector companies such as Tata Motors , Bajaj Auto and Reliance have shown a contraction in their advance tax payments for the quarter ending March 09, while companies like HUL, SBI, Parle, LIC etc. have shown a decent growth in their advance tax payments.

All India advance tax collection until March 15, the last date for payment was Rs 2.82 lakh crore, below the budgeted Rs 3.95 lakh crore. The trend in corporate tax collections, therefore, provides an early indicator of the magnitude of fiscal deficit and the extent of upward pressure government borrowing can put on interest rates. "Advance tax is just a reflection of the economic condition we are in,” said Gaurav Taneja, partner at audit and consulting firm Ernst and Young

Hence, I believe that their is no need to get excited about earnings and consequently markets by seeing the number by banks and FMCG companies (which CNBC is highlighting again & again) because the picture on the other side is not that rosy. Moreover the credibility of these advance tax numbers are not very high since these are not published by any government agency and every TV channel/news papers cite source as "our bureau" and "our sources".

Presently one should wait and watch in the markets since the Nifty has again entered a range of 2700-2850 and only execute long/short positions if a breakout from the range occurs.