Sensex Opens Flat; ITC Rallies Up 3%

Thu, 2 Feb 09:30 am

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Asian markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.25% while the Hang Seng is down 0.51%. The Shanghai Composite is trading up by 0.30%. Stock markets in the US and Europe ended their previous session on a firm note.

Meanwhile, share markets in India have opened the trading day on a flattish note. The BSE Sensex is trading higher by 4 points while the NSE Nifty is trading lower by 10 points. The BSE Mid Cap index and BSE Small Cap index have opened the day up by 0.3% & 0.2% respectively.

The rupee is trading at 67.64 to the US$. Sectoral indices have opened the day on a mixed note with metal and healthcare stocks witnessing selling pressure. While, FMCG and consumer durables stocks are among the top gainers on the BSE.

FMCG stocks have opened the day on a mixed note. Lakshmi Overseas Industries and Huhtamaki PPL Ltd are the most active stocks in this space. Union Finance Minister Arun Jaitley announced a hike in excise duty on cigars, cheroots, pan masala, cigarettes and other related tobacoo products in the Budget announced yesterday.

Reportedly, excise duty on cigars and cheroots have been hiked to 12.5% or Rs 4006 per thousand, whichever is higher, from 12.5% or Rs 3,755 earlier. On pan masala products, the excise duty has been increased to 9% from 6%, while for other unmanufactured tobacco raised to 8.3% from 4.2% earlier.

The cost of cigarettes has been up hill (Subcription Required) for many years. In 2016 alone, the Indian government increased the excise and customs duties on cigarettes by 9%. This led to cigarettes becoming more expensive, and the trend will continue this year as well.

Cigarettes may become much more expensive as the excise duty tobacco products are expected to go up by 10-15%. Apart from tobacco products like cigarettes¸ chewing tobacco, beedis and ghutka will also become more expensive. This step will either drill a hole in your pocket or motivate people to quit, the reports noted.

As countries across the world are moving towards a strict regulatory stance against smoking, economies like India are also facing the heat. The government has been raising excise duty on cigarettes. While cigarette companies had been passing on the incremental duties by raising prices, successive hikes in the past three years is adversely impacting their sales.

Sin tax in India not the highest

However, 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.

To know more about the company's financial performance, subscribers can access to ITC's latest result analysis (subscription required) and ITC stock analysis on our website.

Meanwhile, giving a boost to clean energy programme, Finance Minister Arun Jaitley proposed massive cuts in excise and customs duties on materials used in solar and wind plants and also announced the second phase of solar park development for 20 GW capacity.

In a bid to incentivize domestic value addition under Make in India initiative of the Government, the Finance Minister has proposed to reduce Customs and Excise duties on several items related to the Renewable Energy Sector. This includes all items of machinery required for fuel based power generating system to be set up in the country for demonstration purposes; systems operating on biogas/ biomethane/ byproduct Hydrogen; LED lights or fixtures etc.

The Budgetary allocation to the Ministry of New and Renewable Energy was hiked by 8.7% to Rs 50.4 billion to Rs 54.7 billion.

One must note that, India has set an ambitious target of adding 175 GW of renewable energy by 2022 which includes 100 GW of solar, 60 GW of wind, 10 GW from biomass and 5 GW from small hydroelectric projects (upto 25 MW each).

Speaking of renewable energy space in India, Rahul Shah, Co-head of Research has recently shared his views on how the rise of the renewables is changing the dynamics of the power industry (Subscription Required). He has also compared the costs of setting up various types of power plants in these times and how the Indian central government has been pushing hard for more renewable energy capacity. Here's a snippet of what he wrote:

"The renewable energy sector, and especially solar, have seen their fortunes change at a rapid pace. Leaps in technology have made renewables increasingly cheaper to produce relative to traditional thermal power.

...while thermal is still the cheapest to set up, the gap has quickly narrowed in the past few years and is now down to a whisker."

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