Sensex Opens in Green; BSE IPO Subscribed 50% on First Day

Tue, 24 Jan 09:30 am

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Asian markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.07% while the Hang Seng is up 0.31%. The Shanghai Composite is trading up by 0.10%. Stock markets in the US ended their previous session on a weak note.

Meanwhile, Indian share markets have opened the trading day marginally higher. The BSE Sensex is trading higher by 87 points while the NSE Nifty is trading higher by 25 points. The BSE Mid Cap index and BSE Small Cap index have opened the day up by 0.5% & 0.3% respectively. The rupee is trading at 68.08 to the US$. Sectoral indices have opened the day mixed with consumer durables and banking stocks witnessing maximum buying interest. While, IT and FMCG stocks have opened the day in the red.

FMCG stocks have opened the day on a mixed note with Gillette India, Godrej Consumer and HUL witnessing selling pressure. According to an article in The Economic Times, the legal sales of cigarette in India has shrinked by 22%, which has triggered a similar decline in the return of tobacco farmers due to high taxation on cigarettes.

Excessive increase in the excise duties on tobacco products, cumulative increase of 118% since 2012-13, leading to 22% has led to shrinkage in the legal cigarette volumes. Moreover, the rise in consumption of smuggled cigarettes has increased by over 90% in the last decade.

Notably, tobacco products generate a significant share of the country's excise duty and state taxes-amounting to more than Rs 310 billion annually. In addition, foreign exchange earnings through the export of tobacco and tobacco products garner around Rs 60 billion annually.

Ahead of the Budget (Subscription Required), the Federation of All India Farmer Associations (FAIFA) has asked the government not to increase excise duty on tobacco in order to bring stability in farm prices of the crop. The non-profit organization representing farmers across the states, including Andhra Pradesh, Telangana, Karnataka and Gujarat, appealed to Finance Minister Arun Jaitley to avoid "the onslaught of heavy taxation on legal cigarette industry" and help bring stability in farm prices of tobacco.

Sin tax in India not the highest

As per a report by the World Health Organization (WHO), the tax incidence as a proportion of the retail price of cigarettes in India is still lower than countries such as Bangladesh, Sri Lanka and Thailand. Therefore, it is no surprise that the government committee has recommended a higher GST rate of 40% on tobacco and related products. The standard GST rate is in the range of 17-18%. Going forward, whether the implementation of GST benefit cigarette companies that have been subject to a plethora of tax rates, will be the foremost thing to watch out for.

In another news update, it was reported that, BSE's IPO has garnered over 50% subscription on Monday, the first day of the Rs 12.4-billion offering. The first IPO of calendar 2017 had received bids for 5.43 million shares out of 10.7 million shares on the block. Heavy demand was seen from retail individual investors (RII). Non-institutional investors (NIIs), which include high net-worth individuals (HNIs), subscribed to 12% of their quota limit.

The offer is a 100% book-building one, and 15.4 million shares are being sold in a price band of Rs 805-806 a share. The issue closes on 25 January.

Among the investors who were allotted shares in the pre-IPO placement include Goldman Sachs AMC, ICICI Prudential Mutual Funds, Kotak Mutual Funds, DSP Blackrock Alternative Investment Fund, Reliance Capital Trustee, among others.

Speaking of IPO market post-demonetisation, will 2017 see a revival in the IPO market? When demonetisation was announced in November 2016, it not only led to a correction in the Indian stock markets, but it also had an adverse impact on the primary markets. Many companies postponed their IPO offerings.

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