ITC STOCK MAY RISE AS MUCH AS 30% IN THE NEXT NINE MONTHS

2020 has been a year of re- sets, some would say a year of corrections and some as a year that laid bare the major inconsistencies in geo-economics, geo-politics and even geo-technology. The coronavirus pandemic has made nations not just realise their unsustainable dependence on China, but also highlighted the needs for strategic security partnerships to act as a counter-weight to the growing hegemonistic tendencies of Beijing. The present conversation around the Indous ties should also be seen through the same lens. Both New Delhi and Washington are acutely aware of the security challenges in the Indopacific region and are keen to build on their partnership. Military partnership between the two sides has already seen advancement with defence purchases and acceptance of New Delhi’s strategic role. But trade, which forms the bedrock for any long-term, economically sustainable and mutually beneficial engagement between countries, continues to be the big bone of contention.

In fact, the two sides have been thrashing out differences on trade for several years now, with no success. Trade was expected to be one of the key announcements when President Trump was in India early this year. But the vast differences on both sides ruled out the possibility of any deal.

It is an election year in the US and for President Donald Trump, several concessions from India are important as a starting point for talks. President Trump—who is already facing a lot of flak for his mishandling of the pandemic—must be seen to be a tough negotiator for “protecting American interests”. Optics matter ahead of an election. So while some of the posturing will be for perception, some will be meant to drive a hard bargain from

New Delhi. For instance, import concessions for Harley Davidson bikes is high up in US’S list; likewise any dilution on its visa stand four months before presidential election is very unlikely. The thorny issues of greater market access (that US wants for its companies) and agriculture and dairy will probably be left out since these can threaten to derail talks.

So what will come out will be a very limited trade deal that may serve a very limited purpose for both countries. And will quite naturally be seen only as a work-inprogress.

And while Commerce Minister Piyush Goyal’s enthusiasm in clinching the deal is expected given the multiyear delays the negotiations have already witnessed, one needs to keep in mind going from a limited deal to a fullfledged deal will be another fresh challenge for negotiators. Since it will come after the US election result with altered domestic realities, it could witness fresh delays. And a free trade agreement could be some time away.

But New Delhi’s biggest focus has to be towards ensuring Indo-us ties, which have got a fresh impetus after Covid-19, should not be derailed due to trade impasse. Instead trade relations need to be boosted to create a win-win arrangement. And that message has to be communicated to Washington.

For now, a limited deal needs to be a starting point for accepting the changed geo-political realities in a post-covid world where nations are turning protectionist and forming inward-looking policies. The willingness to remove any barriers to free trade, no matter how limited in its scope, is definitely a welcome move. But for it to progress and lead to mutual prosperity, trade needs to be equally central in Indo-us relations.

Gaurie Dwivedi is a senior journalist covering economy, policy and politics.

Covid-19 has been a major disruptor for many FMCG companies during the initial period of the lockdown, but they have recovered remarkably to post decent results for the June quarter of 2020. Hindustan Unilever Ltd, which is the country’s largest packaged consumer goods company, reported a 7% y-o-y jump in its June quarter net profit at Rs 1,881 crore.

On the other hand, biscuit giant Britannia Industries posted a 118% increase in its net profit for the first quarter of the current financial year 2020-21 to Rs 542 crore while turnover increased by 26% to Rs 3,420 crore over the corresponding quarter.

But ITC took a major hit for the June quarter with a sharp plunge in sales of cigarette, paper and hotel businesses. Margins declined sharply in the above three categories, but it was offset by growth in FMCG sales. The fast moving consumer goods sector is India’s fourth largest sector with household and personal care accounting for nearly 50% of FMCG sales in the country. Growing awareness, easier access and changing lifestyles have been the growth drivers for the sector.

The urban segment which accounts for a revenue share of around 55% is the largest contributor to the overall revenue generated by the FMCG sector in India.

However, recently, the FMCG market has grown at a faster pace in rural India compared to urban India. The retail market in India is estimated to reach US$ 1.1 trillion in the next few years with modern trade expected to grow at 20-25% per annum, which is likely to boost revenue of FMCG companies.

The government has allowed 100% Foreign Direct Investment in the food processing and single-brand retail and 51% in the multibrand retail sector. This is aimed to bolster employment, supply chain and high visibility for FMCG brands across organised retail markets, thereby bolstering consumer spending and encouraging more product launches.

The Government of India has approved 100% FDI in the cash and carry segment and in single-brand retail along with 51% FDI in multi-brand retail.

The Goods and Services Tax (GST) is beneficial for the FMCG industry as many of the FMCG products such as soap, toothpaste and hair oil now come under the 18% tax bracket against the previous rate of 23-24%.

Cut to the present picture, FMCG companies are witnessing revival in sales in the rural areas after a loss of nearly 45 days between April and June 2020.

Analysts tracking the FMCG sector are expecting rural demand to expand significantly in the next few quarters with rural consumers demonstrating a clear preference towards health, wellness, hygiene and immunity boosting products at the forefront. Items like biscuits, noodles, tea, oils, chawanprakash, handwash sanitisers, soaps, shampoo, etc are showing good growth in rural areas.

We are bullish on the FMCG sector as a whole, but particularly ITC, and expect the stock currently quoting at Rs 200 to deliver a 30% price appreciation in the next 9 months’ time frame on the back of increased revenue from all segments.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.

pulse of economy

It is an election year in the US and for President Donald Trump, several concessions from India are important as a starting point for talks. taking stock