Markets Erase Early Gains to Finish Flat; FMCG Stocks Rally on GST Boost

Fri, 19 May Closing

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Indian share markets rose as much as 0.9% to a record high on Friday, scaling an all-time peak before they retreated back to negative territory. However, at the closing bell, the BSE Sensex stood higher by 30 points, while the NSE Nifty finished down by 2 points. Meanwhile, the S&P BSE Mid Cap and the S&P BSE Small Cap finished down by 0.7% and 0.2% respectively. Losses were largely seen in oil & gas stocks, consumer durables stocks and IT stocks, while FMCG stocks and bank stocks witnessed majority of the buying activity.

Time to Be Fearful?

The markets are touching new highs. Markets are awash with funds. Experts are justifying high valuations. The reasons are many - from GST to Make in India to a cashless economy. And retail investors seem to be falling for it.

One must note that currently, in most of the cases, it is liquidity driving the valuations, and not fundamentals. And this is exactly the time when one must allow fear to substitute greed. Also, this is precisely the time when it is most difficult to overpower greed and stay disciplined.

Fast and moving consumer goods (FMCG) stocks were trading higher after items such as cereals, which were taxed earlier at 5%, will now be zero-rated. Coffee, sugar, tea and edible oil will attract a lower GST rate of 5%. Capital goods, a key asset for the manufacturing sector, will be taxed at 28%. Several daily-use items such as hair oil, toothpaste and soap have been kept in the 18%-slab instead of at 28%. ITC Ltd share price jumped 2.8%, HUL share price finished up 2.1% and Colgate share price surged by 3.6%

Announcement of the rates has brought cheer to at least some consumer goods firms, which expect the decision to help boost consumption and stir up activity in an industry as it is recovering from the impact of demonetisation.

Asian stock markets finished broadly lower today with shares in Japan leading the region. The Nikkei 225 is down 1.13% while China's Shanghai Composite is off 0.44% and Hong Kong's Hang Seng is lower by 0.35%. Meanwhile, European markets are higher today with shares in France leading the region. The CAC 40 is up 0.71% while London's FTSE 100 is up 0.44% and Germany's DAX is up 0.25%.

The rupee was trading at Rs 64.99 against the US$ in the afternoon session. Oil prices were trading at US$ 50.07 at the time of writing.

As the government came a step closer to implementing GST from July 1 after finalizing the rates of over 1200 products, Union Minister Arjun Ram Meghwal has described 2017 as year of economic reforms for India, and said that the decision to implement Goods and Services Tax (GST) regime from this July 1 is one of the important economic reforms and would be a major milestone in the growth of the country.

He further said that government's Pradhan Mantri Mudra Yojana, start-up and stand-up programs will help to improve the economic level of the people and economic disparities between the poor & the rich in the country will be reduced by 2020.

Union Minister pointed that demonetisation helped improve the Gross Domestic Product (GDP) of the country despite apprehensions from certain quarters, noting that the growth has gone up and would reach 10 per cent. Meghwal also mentioned the International Monetary Fund's (IMF) positive perspective about the country which has said that Indian economy would be in a commanding position by the year 2030.

In news from bank stocks, SBI share price finished the trading day up by 1.7% after the bank said its net profit for the March quarter jumped 122.7% from a year ago due to higher net interest income and lower provisions.

Net profit for the quarter rose to Rs 28.14 billion from Rs 12.63 billion a year ago. Net interest income rose 17.33% to Rs 180.70 billion from Rs 154.01 billion in the year-ago period.

Gross non-performing assets (NPAs) rose 14.4% to Rs 1.12 trillion at the end of the March quarter from Rs 981.73 billion a year ago. The bank reported gross NPA of Rs 1.08 trillion a quarter ago.

As a percentage of total loans, gross NPAs stood at 6.9% at the end of the March quarter compared with 7.23% in the previous quarter and 6.5% in the year-ago quarter. Net NPAs were at 3.71% compared with 4.24% in the previous quarter and 3.81% in the same quarter last year.

IDBI Bank's share price continued to fall and finished down by 1.6% after the bank announced a historic loss of Rs 32 billion in fourth quarter against Rs 22.5 billion posted in third quarter. The higher loss are on the back of huge provisions for the bad loans which stood at 21%.

The bank also reported its highest ever gross non-performing asset (NPA) ratio at 21.25%. Provisions for NPAs stood at Rs 53.33 billion in the March quarter, 29 times more than what it had reported in Q4 FY16 and total provisions were up 40% YoY to Rs 62.1 billion.

The Reserve Bank has already initiated prompt corrective action (PCA) on the bank as it has posted losses for two consecutive years, reported higher level of bad loans and breaching the minimum capital norms. PCA restricts banks from hiring, opening branches and giving big ticket loans.

In news from automobile sector, as per an article in The Economic Times, Maruti's parent Suzuki will invest Rs 60 billion at its Gujarat factory premises to double production capacity and set up a facility for engines.

The fresh funding is expected to be made within two years and will ramp up the company's investments in the state to nearly Rs 90 billion, and enhance installed capacity to 500,000 units annually.

This will also enable Maruti and Suzuki's cumulative annual production capacity in India to move beyond 2 million units - 1.55 million units at Maruti's two factories in Haryana and 500,000 units at Suzuki's plants in Gujarat.

Maruti and Suzuki have been boosting investments in India as the company aims at sale of 2 million cars by 2020.

Maruti Suzuki share price finished the day down by 0.7% on the BSE.

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