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Sensex drops 273 points, erasing initial gains

Sensex drops 273 points, erasing initial gains
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First Published: Fri, Mar 02 2007. 06 22 PM IST
Updated: Fri, Mar 02 2007. 06 22 PM IST
Agencies
Mumbai: The Bombay Stock Exchange’s Sensitive Index, or Sensex, dropped 273.42, or to 12,886 at the close of trading today. The measure is set for its third weekly decline. The S&P/CNX Nifty Index on the National Stock Exchange fell 84.45, to 3,727.
Shares of ITC, India’s biggest cigarette maker, dropped on concern the nation’s 28 states may value-added tax (VAT) on tobacco products. Reliance and Larsen, India’s biggest company and contractor, respectively, declined, as weaknesses in regional markets prompted some investors to sell local shares.
“While the India story is largely intact, investors are turning a bit cautious because emerging markets as an asset class are beginning to appear expensive,” said K.K. Mital, who helps manage the equivalent of $32 million of Indian stocks at Escorts Asset Management in New Delhi. “Local factors are hurting stocks such as those of ITC. The extension of VAT to cigarettes has been talked about as a possibility.”
Across the region, equities weakened on concern that the US economy, the world’s biggest, will slow. The Morgan Stanley Capital International Asia-Pacific Index slid 0.8% to 142.34 at 6:08 p.m. in Tokyo. It has fallen 3.8% this week, the most since July 2006.
ITC dropped Rs5.95, or 3.5%, to Rs166.55. The tax on tobacco products will be imposed “after the central government direction comes,” Ravi Mital, secretary, finance (commercial taxes) department, government of Bihar, an eastern state, said yesterday. States may charge the tax from 1 April, he said.
“While the excise rate hike of 5% on cigarettes was benign, potential additional tax burden due to VAT may be difficult to pass on, without sacrificing cigarette volume growth or margins in the near term,” Princy Singh, an analyst at Citigroup Inc., wrote in a note to clients yesterday. He is maintaining a “sell” rating on the stock.
In its budget for the year starting 1 April, India increased excise taxes on cigarettes by 5%. Currently, India’s states do not levy value-added tax on tobacco products. They apply VAT to at least 550 products. About 270 items such as medicines and farm supplies are taxed at 4 percent and the remaining at 12.5%.
The rate at which cigarettes may be taxed has not been decided.
Reliance fell Rs55.75, or 4.1%, to Rs1,311. Larsen declined Rs82.45, or 5.4%, to Rs1,458.1.
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First Published: Fri, Mar 02 2007. 06 22 PM IST
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