The stock market gained nearly 1 per cent on Monday, the first trading day after the goods and services tax (GST) came into effect, on hopes the transition to the new tax would be smooth and would benefit consumer-focused companies.
The benchmark Sensex closed at 31,221.62, up 300 points or 0.97 per cent, led by tobacco major ITC, which made a 208-point contribution.
Shares of ITC, which has the highest weight in the Sensex, gained 5.7 per cent and analysts said the lower tax on tobacco would boost the company’s business. Hero MotoCorp and Maruti Suzuki were the second-biggest gainers at 2 per cent each after they announced price cuts on models where the effective tax rate had been lowered.
Market players said investor sentiment received a boost when the GST roll-out was smoother than anticipated, at least among large and organised businesses. Shares also gained on hopes that the lowering of taxes on several consumer items could boost sales.
“The GST implementation has been reasonably smooth. However, there is not much left to play the GST theme, as certain sectors like logistics and consumer stocks, which are expected to benefit, have already gained sharply,” said U R Bhat, managing director, Dalton Capital Advisors.
“The roll-out of the much-awaited tax reform has been largely free of hassles, which was reflected in the buoyant mood on the Street,” added Anupam Singhi, chief operating officer, William O’Neil India.
The BSE Fast Moving Consumer Goods (FMCG) Index gained 3.4 per cent, the highest among sectoral indices, to touch an all-time high.
Analysts said investors lapped up shares of FMCG companies as GST rates on personal care items and other staples were lower.
Shares of cigarette companies like ITC gained as “tax-related risks” were over and the companies would now “deliver a strong and steady earnings growth ahead,” said Suhas Harinarayanan, managing director, institutional equities, JM Financial. All BSE sectoral indices ended with gains. Buying was seen across the board with two stocks advancing for every one declining. Fertiliser stocks also saw huge gains after the GST tax rate fell.
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Most of the buying was driven by domestic investors. According to provisional data, domestic institutional investors bought shares worth Rs 954 crore, while foreign institutional investors (FIIs) pulled out Rs 805 crore. This year, domestic institutional investors, mostly mutual funds, have bought Rs 40,000 crore of stocks. Although buying by FIIs has moderated since June, they have pumped in Rs 54,500 crore in the year to date.
Thanks to the buying support from institutional investors, the markets have gained 17.3 per cent this year and valuations have stretched into expensive territory. “Very little, objectively speaking, gives us enough conviction to buy at current levels. A lot of data, in fact, is telling us to drive with caution. If at all there are reasons for the markets to stay buoyant would be perceived global stability and that while most believe the markets are expensive, they also indicate that they would buy on any correction,” says Harinarayanan.