Sensex Trades in Green; ITC, HUL Shine

Fri, 19 May 11:30 am

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After opening the day strong, share markets in India have continued the momentum and are currently trading in green, comfortably above the 30,000 level. Sectoral indices are trading on a mixed note with stocks in the FMCG and the realty sectors trading in the green, while stocks in the IT sector are leading the losses.

The BSE Sensex is trading up by 50 points (up 0.2%), and the NSE Nifty is trading up by 14 points (up 0.2%). Meanwhile, the BSE Mid Cap index is trading down by 0.1%, while the BSE Small Cap index is trading up by 0.4% The rupee is trading at 64.80 to the US$.

The BSE FMCG Index is leading the gains on the bourses today after the announcement of favorable rates under the new Goods and Service Tax (GST) regime. ITC and HUL were among the top gainers, with gains of 4.5% and 2.5% respectively.

Daily use products such as hair oil, toothpaste and soap are expected to become cheaper as these will be taxed at 18% under GST compared with 28% at present. Cereals, which now attract a 5% tax, have been exempted, meaning these too are likely to cost lower.

The March-quarter results of listed companies such as Hindustan Unilever, Nestle, Dabur and Marico indicate that the Rs 2500 billion fast moving consumer goods sector has mostly shrugged off the impact of demonetisation.

Hindustan Unilever posted 4% growth in volume, while Nestle's sales rose 9.7%. Industry players expect the momentum to improve further.

Tea, coffee and sugar, which have been put in the 5% slab under GST, may not see a significant impact on prices as these are already in the 4-6% bracket.

Staples such as pulses and food grains have been added to the list of tax exempted items. These staples were previously taxed between 1% and 5% in different states. Milk has also been added to this category.

Announcement of the rates has brought cheer to most FMCG companies, which expect lower rates would help boost consumption and thereby recover from the impact of demonetisation.

GST, when implemented will bring in a host of regulations to enable transparency in the tax regime.

This will no doubt lead to added costs for implementation of regulations. But unorganized players bearing the brunt of added costs of compliance may find it difficult to comply with the GST norms and compete with the well-established organised players. Thus organised players are likely to benefit in the long run.

Sectors That Can Benefit From GST

The implementation of GST is bound to bring more companies under the new tax regime, thus providing a level playing field to organized players forming part of sectors having a high proportion of the unorganized segment.

This will lead to a lot of opportunities in the organized sector. So, how can one make the most of these opportunities?

We believe a few super investors could provide the clue. These are the guys who've beaten the markets black and blue and have an eye for multi bagger stocks irrespective of the macro environment.

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To know more about these superinvestors and their stock picking approach, download a free copy of -The Super Investors Of India.

Moving on to news from the IPO space. State run HUDCO made a strong debut on the stock exchanges today. HUDCO share price opened at a premium of over 22% from its issue price today.

The Rs 11 billion initial public offer of HUDCO had received bids worth Rs 970 billion, thereby recording the highest oversubscription in any PSU disinvestment.

This is the first IPO of a Central Public Sector Enterprise since April 2012. The HUDCO issue saw a lot of interest and was oversubscribed by more than 79 times.

The portion reserved for qualified institutional buyers (QIBs) was subscribed 55.45 times, non-institutional investors saw a subscription of 330.36 times and retail investor's category was subscribed about 11 times.

The IPO had opened on May 8 and closed on May 11. The price band for the issue was set at Rs 56-60 a share.

The state-run HUDCO, which provides loans for housing and urban infrastructure projects in India, recently raised over Rs 11 billion as a part of its IPO, assisting the government's efforts to meet its disinvestment target.

We had given our view of the HUDCO IPO recently. In this detailed report, we not only evaluated the company's business performance, but also outlined key risk areas and answered questions regarding valuations. You can find the complete report here (subscription required).

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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