Top 16 stocks which are getting impacted the most from import duty hike.

The Indian government on Wednesday hiked import duty on high-end consumer items including washing machines, air conditioner, footwear, diamonds, jet fuel as a part stabalise currency and to reduce current account deficit (CAD).

“The government has chosen consumer goods over capital ones, banking on the robust and resilient consumption growth over the past year. Given these are a small share of overall imports, the measures would help reduce imports by only USD 500 million (0.1% of total imports), which is quite small,” Nomura said in a report.

“In our view, the currency depreciation thus far is likely to play a bigger role in reducing the imports as compared to the import duty hikes. Nevertheless, it adds to the incremental steps that the government has been taking to trim the current account deficit and improve the scope of its funding,” it said.

The total value of imports of these 19 items in the year 2017-18 was about Rs 86,000 crore, as per the finance ministry release.

The increase in basic customs duty from 10% to 20% is applicable for air conditioners, refrigerators and Washing Machines (<10kgs) while duties on compressors have been raised from 7.5% to 10%.

The increase in customs duty of 10 percent includes the outdoor, indoor and completely built units which would see an increase along with an increase in duties for compressors by 2.5 percent. In case of compressors, 70-75 percent of the requirement is met by imports from China where price hikes would be needed by manufacturers to pass on the increase.

“In the case of indoor units, Indian manufacturers like Voltas, Blue Star, Lloyd depend primarily on imports while MNC players like Daikin, Hitachi make/source it in India; higher duties will give an advantage to the MNC players till the time the Indian players too start sourcing the same domestically,” Motilal Oswal said in a note.

Goldman Sachs in a note said that hike in customs duty is negative for Voltas. Morgan Stanley suggests that a hike in customs duty is likely to hurt earnings in H2FY19.

Within refrigerators, Whirlpool has manufacturing facilities in India and only imports the 400litre range which would be the only range to be impacted from the duty hikes.

“VoltBek Appliances (JV of Voltas and Arcelik) is importing its entire range of refrigerators (direct cool and frost-free) till its plant starts in mid CY19 at Gujarat – our channel checks suggest that most of the sourcing would be done from Thailand which has a free trade agreement with India and would remain unaffected by the increase in duties on refrigerators,” said a Motilal Oswal note.

CLSA in a note said that Voltas’s JV with Arcelik would be hurt as appliances are 100% imported. Voltas Beko’s domestic factory will likely take a year to start. Commenting on Havells India, it said that the company currently imports 70 percent of Lloyds requirement but has the option to shift to domestic manufacturing.

Morgan Stanley maintains an equal-weight rating on Havells India with a target price of Rs 712. The global investment bank said that commissioning of AC plant is likely by Mar-19 which will moderate the impact in FY20.

The government has hiked the import duty on car radial tyres from 10-15 percent. The imports account for 13 percent of the domestic FY18 sales volumes. “This is sentimentally positive for tyre companies like MRF, Apollo Tyres, CEAT, JK Tyres,” said a Sharekhan report.

OMC stocks like IOCL, BPCL, and HPCL are in focus after the Indian government imposed 5 percent import duty on ATF from nil currently. It will be positive for OMCs as it could help them increase marketing margins on ATF but could weigh on aviation stocks like Jet Airways and SpiceJet.

The custom duty on footwears increased to 25 percent from 20 percent earlier. “It is positive for Footwear companies such as Bata India and Relaxo Footwear,” said the Sharekhan report.

There is no change in import duty on gold which is positive as this would lift the overhang on the stock in the near term. Morgan Stanley maintains an overweight rating on Titan Company with a target price of Rs 1250. Hike in rate or jewellery pieces is marginally positive as it reduces competitiveness.