Share Markets in India Open Flat Amid Weak Global Cues

Wed, 12 Apr 09:30 am

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Asian equity markets are lower today as tensions continue to ratchet up on the Korean Peninsula following a warning from North Korea of a nuclear attack on the US. The Shanghai Composite is off 0.42%, while the Hang Seng is down 0.18%. The Nikkei 225 is trading lower by 1.25%. The US equities also fell in their previous trading session as investors fretted over geopolitical concerns.

Meanwhile, share markets in India have opened the day on a flat note tracking global equity markets. The BSE Sensex is trading up by 16 points while the NSE Nifty is trading down by 3 points. The BSE Mid Cap index and BSE Small Cap index both have opened the day up by 0.1% & 0.2% respectively.

Barring consumer durable stocks and fast moving consumer goods stocks, all sectoral indices have opened the day in green with oil & gas sector and realty sector leading the pack of gainers. The rupee is trading at 64.54 to the US$.

Vedanta share price surged 2.8% after it was reported that the merger of Cairn India Ltd with Vedanta Ltd has been completed. The merged entity will have a market capitalization of US$15.6 billion, and higher free float, outstanding shares available in the public sphere of 49.9%.

Reportedly, Vedanta will have one of the strongest balance sheets in the Indian corporate sector with the flexibility to balance the capital allocation to the highest return projects while providing a strong and stable dividend. The merger boosts Vedanta's revenues to US$9.7 billion (about Rs 623 billion).

Though Cairn India, as a legal entity, ceases to exist, Vedanta said that it will preserve the Cairn brand for the oil & gas production business. Vedanta will fuel the growth for the diversified natural resources group as India becomes the growth engine for the world economy.

The eligible Cairn India shareholders, who will become shareholders of Vedanta now, would also receive an interim dividend of 17.70 per equity share as approved by the board of Vedanta.

One must note that the two companies announced plans for the merger in June 2016, which would give Vedanta access to the cash of Cairn India, helping it cut debt (subscription required). Cairn India, a spin-off of Cairn Energy's Indian assets, was 61% owned by Vedanta when the miner said it planned to buy the remaining shares.

The merger will increase the appeal of Vedanta Ltd to global investors as it simplifies the structure and increases the size and free float of the company, the reports noted.

Moving on to the news from stocks in FMCG sector. As per an article in a leading financial daily, ITC Limited is looking to increase its share in the packaged fruit juice market in India to about 20% in the next five years from 7% at present.

The packaged fruit juice segment is currently estimated to be around Rs 25 billion. ITC is the third largest juice maker, after Dabur, which is in the top spot with its Real and Real Activ brands, and PepsiCo India's Tropicana, which is at the second position, the reports noted.

The company is looking to expand its sales network to meet the target. ITC had forayed into the premium packaged fruit drinks market in 2015 with the acquisition of the B Natural brand. Further, ITC also plans to increase retail points of its luxury chocolate brand Fabelle and take it outside its hotels the only places where it is available currently.

FMCG Contributes 25% of Net Sales

Speaking of ITC's foray into FMCG space, 70% of the company's non-cigarette FMCG segment is earned from its food brands. The company ventured into the foods business in 2002 and in the past seven years, segment revenues have trebled to 97.2 billion in FY16.

The non-cigarette FMCG business, turned the corner only in 2013-14, more than 10 years after the launch. In 2015-16, the segment contributed a mere Rs 0.71 billion out of the company's total pre-tax profits of Rs 149.6 billion.

The latest report on the packaged foods industry by JP Morgan pegs ITC at the second position in most of the food categories it operates in with improving market shares. However, the FMCG segment is also facing tough competition from ayurvedic products offered by Patanjali and Sri Sri Ayurveda in recent times.

Going forward, what the company does to twist the current dynamics at play in the FMCG segment to ITC's advantage, will be interesting to watch out for.

ITC share price began trading down by 0.4%.

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