beyondbrics Sen sex: smoke over gas

Sensex: smoke over gas

beyondbrics

A glance at the Bombay Stock Exchange’s benchmarkSensex on Tuesday might have given the impression that more Indians than ever are lighting up.

glance at the Bombay Stock Exchange’s benchmark

Sen sex 

on Tuesday might have given the impression that more 

Indians than ever are lighting up.

ITC – formerly the Indian Tobacco Company, and, before 

that, the Imperial Tobacco Company India – overtook 

Reliance Industries as the index’s top-weighted stock.

But while a recent study estimates that 120m Indians smoke, 

not to mention the many who chew their weed, analysts said 

ITC’s BSE advance had more to do with stock market 

conditions than cigarette sales.

Faced with growing financial uncertainty, investors pushed 

ITC above energy group RIL and Infosys, the IT services 

company,  on the grounds that tobacco is a safe bet in 

difficult times.

“I think that the consumer sector has done extremely well 

over the last 12-18 months because I think a lot of fund 

managers have increased their positions in defensive sectors 

and stock, meaning those with great deal of earnings 

visibility,” said Girish Pai, head of research at 

Cent rum

Broking. “They’ve reduced positions in sectors and stocks 

where they believe earnings are going to be at risk.”

Those include RIL, where well-publicised production

problems in the Bay of Bengal have sent its stock 

Dow

n nearly 26 per cent in the last 1 year, and Infosys, which 

has seen a disappointing growth forecast for the coming 

fiscal year send its stock down nearly 17 per cent since 

Thursday.

ITC also has interests in hospitality (including the ITC 

Maurya in Delhi, home of Bukhara, often cited as one of 

Asia’s best restaurants), apparel (menswear shop John 

Players), and toiletries (Fiama di Wills, makers of soaps and 

shampoos) – but its real business is tobacco, where analysts 

said it generates more than 80 per cent of its revenues.

Of the four companies that control nearly all of India’s 

tobacco market, ITC is by far the largest, with over 60 per

 cent of total production, and 80 per cent of sales and

 market share, according to the World Health Organiz

ation

.

ITC also benefited from the maths by which the Sen sex 

determines weight: solely by stock that is floated on the 

market.  Stakes controlled by founding families and top 

executives are excluded. So, because billionaire Musketry 

Ambani owns around 45 per cent of RIL, only 55 per cent of 

the company is accounted for in the BSE’s index weighting.  

In the case of Infosys, some 16 per cent is owned by the 

founders are excluded.  At ITC, 31 per cent is controlled by 

BAT, the UK-based tobacco group, so it’s percentage free 

float is smaller than that of Infosys but both are much 

higher than RIL’s.

ITC’s triumph was short-lived. After its shares slipped on 

Wednesday and RIL’s rose, RIL was back on top. According 

to BSE figures, at Wednesday’s close the full market cap of 

RIL was Rs2.4  trillion $bun) and the free-float Rs1.35 

trillion ($26.1bn).  The numbers for Infosys were Rs1.36 

trillion ($26.3bn) and Rs1.16 trillion ($bun), and for ITC 

Rs1.89 trillion ($36.5bn) and Rs1.32 trillion ($25.6bn).

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