Similar to the moves on the wall street, Indian market slipped off the day's high amid the highly volatile day of trading. However, with banking and financial stocks picking up late in the day, the market recovered in the last hour to close the day on a high.

Intraday, Sensex closed 0.74% up at 31,685.75 while Nifty gained 0.71% to close at 9,270.90. Bajaj Finance (up 5.19%), M&M (up 5.16%) and GAIL (up 3.95%) were the major gainers of the day while ITC (down 5.75%), Infratel (down 5.69%) and Coal India (down 3.08%) were the major losers.

The IHS Markit India Services PMI for April 2020 came hitting the ground hard, shrinking to 5.4 in April. Any reading below 50 indicates contraction and the reading of 5.4 tells about the impact of lockdown. Manufacturing PMI was no exception either as it crashed to 27.4 in April from 51.8 in March.

Bears troubling? Hold my beer!

With the country limping back to normalcy, opening liquor shops is the first move that the government could think of. Amid the queues and chaos, it provided enough meat for meme-makers. However, beyond the world of online trolls, alcohol economics remains a serious business for the exchequer. 

Consider this: An RBI report published last year suggested that 29 states and the UTs of Delhi and Puducherry combined, collected a whopping sum of Rs.1.75 lakh crore in form of state excise via liquor sales in the calendar year 2019-20.

In fact, for the majority of states, excise duty on alcohol counts as the second or third largest contributor to their state’s own tax revenue. In 2019-20, GST had the highest share at 43.5%, followed by Sales Tax at 23.5%. State excise at 12.5%, and taxes on property and capital transactions at 11.3% came close to liquor excise collection.

Key takeaway:

Given the lucrativeness of liquor excise collection, states within a day or two of opening the wine shops went for a hefty hike in the excise duty. 

Karnataka increased excise duty on liquor by 11% while Delhi announced a ‘special corona fee’ of 70% on the retail price of alcohol. With states going desperate in the absence of revenue, this option is likely to catch up with other states as well in the coming days.

Oil: Goose that lays golden eggs

With all revenue sources drying up, the government has turned to its favourite bellwether. The government has opted to hike excise duty on petrol and diesel for the second time in a month. It has come at a time when international oil prices are hovering around historical lows.

The latest move of increasing excise duty on petrol by Rs.10/litre and by Rs.13/litre on Diesel, will mop up close to Rs.1.6 lakh crore in additional revenues.

Key takeaway:

In a major relief to the common man though, increased excise duty on petrol and diesel will not impact the retail prices as the excise duty hike is being adjusted against the gains of lower crude oil prices. 

However, it could result in a higher strain on the oil marketing companies, impacting their margins.

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