After opening the day on a negative note, the Indian share markets witnessed further losses and went on to trade in the red. Sectoral indices are trading on a negative note with stocks from the FMCG sector and the energy sector witnessing maximum selling pressure.
The BSE Sensex is trading down 247 points (down 0.8%) and the NSE Nifty is trading down 55 points (down 0.6%). Meanwhile, the BSE Mid Cap index is trading flat, while the BSE Small Cap index is trading down 0.1%. The rupee is trading at 64.32 to the US$.
Share price of ITC is witnessing maximum selling pressure in the FMCG space today. Most of this brunt is seen after the GST Council amended the cess on cigarettes.
The Goods and Services Tax (GST) Council has decided to increase the cess on cigarettes to offset reduced tax revenue from the product following the GST rollout. Accordingly, the tax burden on cigarettes will go up by Rs 4.8-7.9 per 10 sticks, depending on their length and whether or not they have filters.
As per Finance Minister Arun Jaitley, the increase in cess is expected to help the government raise around Rs 50 billion of additional tax revenue which would have been pocketed by cigarette companies.
The stock of ITC had surged to a record high lately after the announcement that GST rates were reducing the tax on cigarettes by around 6-7% compared to that in the earlier regime. However, with the above development, the tax incidence will be the same as before and accordingly the rates will be at par with those under the older regime.
For investors, this comes as a reminder for considering the impact of regulatory risks such as the above while considering stocks for investment.
We, at Equitymaster, rigorously follow Equitymaster Risk Matrix (ERM®). The risks are objectively evaluated via the ERM® score. This helps us keep our analysis objective and casts aside all pre-conceived bias.
