Shares in cigarette maker ITC fell as much as 7 per cent on Monday after Union Health Minister Harsh Vardhan asked for a substantial hike in excise duty on cigarettes and other tobacco products.
The sharp losses in ITC, which is the most influential stock on the Nifty, hurt the overall market sentiment. ITC was the top loser on the 50-share Nifty.
Dr. Harsh Vardhan said cigarettes should carry uniform tax of Rs. 3.5 per stick irrespective of size. Currently, duties are imposed on the basis of length of cigarette sticks. ITC’s average excise duty is around Rs. 1.8 per stick currently, brokerage CLSA said.
Kaustubh Pawaskar, FMCG analyst at Sharekhan told that the latest proposal is aimed to reduce consumption of cigarettes among first-time smokers. Over the past two years, the government has increased excise duty on cigarettes by an average of 20 per cent, he added.
“If the government significantly increases excise duty on cigarettes, the company will also have to increase prices, which will put pressure on volumes… Over the last two years, we have seen substantial increase in price of cigarettes, especially of ITC and that has impacted sales volume,” Mr. Pawaskar noted.
Other tobacco companies – Godfrey Philips and VST Industries – also came under sharp selling pressure.
ITC shares ended 6.2 per cent lower at Rs. 314.95. Godfrey Philips closed down 1.3 per cent at Rs. 2,867, while VST Industries ended 6.2 per cent lower at Rs. 1,783.60. The Nifty closed off the day’s low at 7,493 after falling 18 points.