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Sensex Finishes Strong Post GST Rollout; FMCG, Auto Stocks Rally
Mon, 3 Jul Closing

Indian share markets continued to soar in the afternoon session amid firm global markets and headed for third straight session of gains on hopes of newly implemented goods and services tax (GST).

At the closing bell, the BSE Sensex stood higher by 300 points, while the NSE Nifty finished up by 94 points. Meanwhile, the S&P BSE Mid Cap & the S&P BSE Small Cap finished up by 1.1% and 1% respectively. Gains were largely seen in metal stocks, realty stocks, auto stocks and FMCG stocks.

Asian stock markets finished higher today with shares in Japan leading the region. The Nikkei 225 is up 0.11% while China's Shanghai Composite is up 0.11% and Hong Kong's Hang Seng is up 0.08%. European markets are broadly higher today with shares in France leading the region. The CAC 40 is up 1.04% while Germany's DAX is up 0.70% and London's FTSE 100 is up 0.44%.

The rupee was trading at Rs 64.75 against the US$ in the afternoon session. Oil prices were trading at US$ 46.02 at the time of writing.

Ashok Leyland share price soared 6.9% after the auto major reported 11% rise in sales at 12,330 units against 11,108 units sold in the same month last year.

Meanwhile, with two-wheelers and sport-utility vehicles attracting lower tax rates under the Goods and Services Tax, more automakers announced passing on the benefit to the customers and slashed their vehicle prices.

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The two-wheeler major TVS Motor Company cut prices of its models by up to Rs 4,150. Maruti Suzuki and luxury automakers Jaguar Land Rover, Mercedes Benz, Audi India and BMW had already announced reduction in their car prices on July 1, in the range of 3% to 12%.

FMCG stocks finished the day up by 3.4% with Godrej consumer share price and ITC share price leading the gainers. ITC share price gained as much as 6% today to become the fourth Indian company to cross market capitalization of Rs 4 trillion as investors continued to buy the stock after the government notified that cigarettes will be exempted of additional excise duty under the goods and services tax (GST) regime.

According to the notification issued by the central excise department, basic excise duty and additional excise duty are repealed and only national calamity duty is continuing under the GST regime for cigarettes (subscription required).

Reportedly, net realisation for ITC's portfolio can increase by 7% (with the same pricing) with tax savings of Rs 0.25 per stick in the GST regime.

The tax savings in the GST regime is mainly on account of removal of multi-layer tax regime. Earlier VAT was levied on excise duty, while GST now will not be applicable on Cess.

Additionally, specific tax share in GST regime is higher compared to VAT, which gives companies like ITC a competitive advantage.

Moving on to the news from the economy. Signaling weaker improvement in the health of the sector, manufacturing activity in India fell to a four-month low in June amid softer rise in factory new orders.

The seasonally adjusted Nikkei India Manufacturing Purchasing Managers' Index (PMI)-a composite single-figure indicator of manufacturing performance-slipped to 50.9 in the month of June as against 51.6 in the month of May.

According to the survey data, the challenging economic conditions, water shortages and the implementation of the GST hampered on the growth of the sector.

Further, payroll numbers and purchasing activity witnessed marginal increment in the month of June. The survey also pointed that ongoing growth of buying levels, though the rate of expansion has softened from May.

In the month of June, input costs continued to increase, however, the rate of inflation was modest and the weakest since August 2016. Similarly, output charges rose only slightly, at a below-trend pace.

While the new tax system is anticipated by some firms to generate more business, others expect the GST will have a negative impact on their businesses. With the impact of demonetisation largely over and GST unlikely to substantially derail consumer spending, the IHS Markit forecasted real GDP growth to hit 7.3% for 2017-18.

Airline stocks finished the day on a mixed note with Interglobe Aviation share price and Jet Airways share price leading the gains.

A Good Year For Aviation Stocks

2017 started off on a brilliant note for aviation stocks. Crude prices had crashed. And lower cost of air turbine fuel suddenly changed the economics of the aviation business. In India, fuel costs account for a lion's share of operating expenses for companies like Spicejet and Jet Airways. Lower costs therefore meant the possibility of the companies reporting profits at least at the operating level. The stock of Spicejet, in particular, soared on the expectations of a turnaround in profitability.

To add to that, Buffett did something in the last quarter of 2016 that Buffett aficionados would consider unimaginable. He poured upwards of US$ 2 billion a piece into the four largest US airline stocks - American Airlines Group Inc, Delta Air Lines Inc, Southwest Airlines Co, and United Continental Holdings Inc. This took his total investments in these companies to a mammoth US$ 9.2 billion as of December 2016.

And here's a note from Profit Hunter:

Ashok Leyland was among the most active stocks in the market today - up 7%. Let's have a look at its chart.

After the stock bottomed out at Rs 12 in August 2013, it traded in a strong uptrend to hit a high of Rs 99 in August 2015. It then consolidated for six months, finding strong resistance from 97 level. It finally broke out on the upside in March 2016 to hit a new life high of Rs 112.

But the stock again slipped below 97 level, which was acting as strong resistance again.

We mentioned in our earlier note that this is the level to watch. Last month, the stock found resistance at this level and plunged 7% in a few sessions.

But the stock recovered sharply and today broke above this 97 level with heavy volumes.

So will the bulls now overpower the bears in the sessions to come? Let's keep a close watch...

Ashok Leyland up 7% for the Day
Ashok Leyland up 7% for the Day 

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S&P BSE SENSEX


Jul 25, 2017 (Close)

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