Shares of fast-moving consumer goods (FMCG) companies gained in Friday’s trade ahead of the Goods and Services Tax (GST) Council meeting scheduled for September 3-4.
The council, chaired by Finance Minister Nirmala Sitharaman, is expected to deliberate on moving to a two-rate structure of 5 percent and 18 percent, with a special levy of 40 per cent on items such as luxury cars and sin goods. At present, GST follows a four-tier structure of 5, 12, 18 and 28 percent.
Colgate-Palmolive surged up to 4 percent to an intraday high of Rs 2,357.90 on the NSE after a report said GoM on GST has proposed a GST cut to 5% on toothpaste. Britannia, ITC, Dabur, Patanjali Foods, Emami and Marico advanced between 2 percent and 3 percent. Hindustan Unilever also traded higher.
Tracking the movement, the Nifty FMCG index climbed 1.7 percent, with 12 of 15 index constituents trading in the green.
GST Council to meet on September 3-4 in New Delhi
Items in the 12 percent bracket such as ghee, butter, cheese, paneer, bottled water, juices, instant noodles, pasta, wafers and Chyawanprash could shift to 5 percent if the proposal is cleared.
"Indian FMCG companies are on a structural growth path, with several categories like shampoos and premium detergents still under-penetrated and underserved. Increasing rural penetration further strengthens the sector’s growth potential. Additionally, government tax incentives, potential rate cuts, and the recent GST reduction are expected to further spur consumption," said Axis Securities recently.
"FMCG demand remained stable, showing a gradual sequential improvement backed by favorable macros. The rural market continued to perform well, with urban demand also picking up. Our staple companies reported sales growth of 10% (est. 6%), EBITDA was +1% (est. +1%), and APAT was flat YoY (est. +2%). Volume growth for most companies was limited to low- to mid-single digits. The early onset of the monsoon impacted the summer product portfolio of a few consumer companies (Dabur, Emami)," said Motilal Oswal Financial Services earlier this week.
Sanjiv Puri, Chairman, ITC Ltd., said PM's vision to unleash next generation reforms especially in the GST framework is far-sighted and will spur a virtuous cycle of consumption, investment, growth and employment.
"The Government’s resolve to ensure ease of living by enhancing affordability and accessibility of all items meant for daily consumption, including foods, for a large section of society will benefit the sizeable middle-class population, MSME’s and farmers," he added.
FMCG stocks are seen as key beneficiaries of a rate cut. Food and beverages currently fall under 5, 12 and 18 percent slabs.
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