The BSE FMCG index hit an all-time high on Monday with a key component, with ITC – which is the largest contributor to the index – soaring to fresh 52-week high. ITC, which gained 9.06% in intra-day trade, hit a high of Rs 353.20 on the Bombay Stock Exchange. The BSE S&P FMCG index surged 3.40% by ending at 10,782.86 points, and shares of ITC ended 5.70 % higher closing the session at Rs 342.30. The government has issued a notification clarifying that there will be no levy of any additional duty of excise on cigarettes. However, there is no clarity on whether the current ‘National Calamity Contingent Duty’ (NCCD) will be levied in addition to the Goods and Services Tax (GST).
Should NCCD be levied at the existing rate, calculations suggest an approximately 4% reduction in cigarette taxes and around a 2% price flexibility for ITC. “However, in the event that NCCD is not applicable on cigarettes, we see a higher 7% reduction in cigarette taxes and around a 3.5% price flexibility,” Morgan Stanley wrote in a report. Morgan Stanley expected the stock to react positively, even as clarity on NCCD is yet to emerge over the next few days.
“The debate on government tax policy on cigarettes has been turned on its head – investors expected the government to be particularly harsh on cigarette consumption, but it now appears that a spurt in illicit cigarette trade and a shift in favour of less tax-efficient forms of tobacco may have challenged the popular notion of a relatively easy increase in tax collection from the category – leading to a look beyond the obvious health concerns,” Morgan Stanley wrote in a report. FMCG stocks rose between 1.5% and 7% in Monday’s trade on the BSE. Nomura, in a report, wrote that by and large most FMCG companies would benefit from GST.
“In the long term, free inter-state movement of goods would mean that they would benefit from better logistics planning, which would bring cost efficiencies into the system. In the near to medium term, we believe that the benefit would essentially arise out of lower rates for many categories, which would mean lower prices for several products for end consumers, and that essentially may spur demand in the correct weak growth scenario,” Nomura said. Shares of ITC rose 6% on the bourses in the wake of GST rollout, helping the cigarette-maker to become the fourth firm to cross Rs 4 trillion in market capitalisation.
On NSE, the shares jumped 5.92% to end the day at Rs 342.80. During the day, the stocks had rallied 9.62% to touch 52-week high of Rs 354.80. The market capitalisation of ITC rose to Rs 4,15,804.92 crore, leading to the firm joining the likes of TCS, RIL and HDFC Bank in the over Rs 4 trillion m-cap club. During the day, 23.14 lakh shares of ITC changed hands on BSE and 4.70 crore scrips were traded on NSE.