Indian Markets Tuesday Wrap-Up: Tax Cuts Prop up Markets

Includes: EPI, IFN, IIF, PG
by: Equitymaster

Taking cues from their global peers, the Indian markets opened the day on a weak note. Thereafter, persistent buying activity led the indices to gain momentum and end the day marginally below the dotted line. The Sensex closed lower by around 20 points, while the Nifty closed lower by around 5 points. Stocks from the mid-cap and small-cap indices ended in the red as well. While stocks from the oil & gas and IT space led the pack of gainers today, stocks from the metal and banking space bore the brunt of profit booking. Rupee closed at 49.92 against the US dollar. The Asian markets ended on a weak note today. The European indices are currently trading weak as well.

Stocks of oil marketing companies (OMC) ended the day on a weak note led by BPCL, HPCL and IOC. As per a leading business daily, IOC, HPCL and BPCL have shelved their plans to invest in Brazilian sugarcane farms for producing ethanol. This is on account of the economic slowdown and liquidity crunch. According to initial plans, the three firms had decided to jointly buy or lease plantations and related units for producing ethanol. In addition, these OMCs were to form a joint venture company for ethanol investments and share half of the equity in it, with the remaining half being offered to the Brazilian partners. It may be noted that crude prices have dropped by over 70% from the highs they touched mid 2008. As such, it makes the usage of ethanol less viable.

FMCG stocks ended the day on a weak note led by P&G Hygiene and Godrej Consumer. As per a leading business daily, Dabur India has introduced newer variants of its anti-dandruff shampoo brand ‘Vatika’. This will allow the company to enter the segment in competition with big players such as HUL and P&G (NYSE:PG). P&G’s brand ‘Head and Shoulders’ currently has the largest market share (58%) in the anti-dandruff segment. This is followed by ‘Clinic All Clear’, a brand promoted by HUL with a share of 36%. It is believed that ‘Vatika’ has a market share of over 5%. This is a positive development for the company considering that its ‘Vatika’ branded products are growing at a pace of over 38% YoY in volumes as compared to the industry’s growth rate of 18% YoY. The hair care segment contributes around 22% to the company’s consolidated revenues.

The government today announced that the 4% excise duty cut across-the-board will continue beyond March 31, 2009. The excise duty on cement will be reduced to 8% from 10%, while service tax will be cut from 12% to 10%. Further, customs duty exemption on naphtha has been extended beyond March 31, 2009, to provide relief to the power sector. The measures would help the industries to mitigate some pressure of the economic slowdown.