Shares of consumer companies extended their gains logged on Friday, and jumped up to 11 per cent on the BSE on Monday, on expectation of an improved consumer demand after the government announced sharp cuts in corporate tax rates.
Hindustan Unilever (HUL), Nestle India, Asian Paints, Avenue Supermarts (D-Mart), Bata India, Berger Paints, Titan Company, Voltas and Colgate-Palmolive India were among the notable stocks that hit their respective fresh all-time highs on the BSE today.
In the past two trading days, these stocks have rallied in the range of 10 to 18 per cent, as compared to a 9 per cent gain in the benchmark S&P BSE Sensex.
According to foreign brokerage Credit Suisse, large tax-cut gains would benefit among consumer stocks like Avenue Supermarts, Colgate, Nestle, Page Industries, Asian Paints, Crompton, Jubilant Foodworks, Britannia Industries and Hindustan Unilever.
“Unlike in case of the Goods and Services Tax (GST), the government has not explicitly asked companies to pass-on benefits from reduced tax rates to consumers. (Thus) We think companies will be inclined to retain the tax cut benefits to boost earnings. However, this measure will be supportive in the more mature categories (where competition is intense and demand subdued), and companies might utilise any tax savings to fuel growth,” analysts at SBICAP Securities said in a report.
Echoing similar views, Emkay Global Financial Services said in report that given the weak demand scenario, companies were expected to partially use the tax benefit to improve their volume growth through higher advertising and promotional (A&P) spends. Consequently, any benefit of the tax cut was unlikely to be passed on to customers, with most of the benefits being retained by companies.
“Lower tax offsets margin concerns, improves earnings visibility and also increases ability to spend aggressively behind new launches. Lower tax improves earnings visibility and helps to further step up ad spends vs. peers to gain share as well as enter new categories,” it added.
|GlaxoSmith C H L||7806.80||8876.90||13.7|
|P & G Hygiene||10476.40||11850.00||13.1|
|Crompton Gr. Con||236.80||267.00||12.8|
|Johnson Con. Hit||1770.15||1970.00||11.3|
|La Opala RG||162.60||179.00||10.1|
|Aditya Bir. Fas.||187.65||206.00||9.8|
|S&P BSE Sensex||36093.47||39203.89||8.6|
|Latest price on BSE in Rs at 11:42 am|