MUMBAI, India: A surprise increase in excise duty on cigarettes triggered a sharp selloff in Indian tobacco stocks, as investors weighed the impact of higher prices on demand and profitability in one of the world's largest smoking markets.
Shares of ITC, the country's largest cigarette maker and producer of Gold Flake, fell 9.2 percent, while Godfrey Phillips India, which distributes Marlboro locally, plunged 14.1 percent.
ITC was trading at 365.50 rupees, its lowest level since April 2023, and was on track for its worst session in nearly six years. Godfrey Phillips was headed for its steepest decline since November 2016.
The selloff followed a notification late on December 31 from India's finance ministry announcing a new excise duty on cigarettes ranging from 2,050 rupees to 8,500 rupees (US$22.82–$94.60) per 1,000 sticks, depending on cigarette length. The revised levy will take effect from February 1.
ITC emerged as the biggest drag on the benchmark Nifty 50 and also led losses in the fast-moving consumer goods sector, with the Nifty FMCG Index down 3.2 percent.
Jefferies analysts described the tax move as "a clear negative," warning it could weigh on volumes and rekindle concerns over market share losses to the illicit cigarette trade.
Health issues linked to smoking are viewed as a significant burden on India's public resources, prompting the government to periodically raise taxes and mandate larger pictorial warnings on packaging to curb consumption.
While authorities have not outlined how much retail cigarette prices may rise, analysts said manufacturers are likely to pass at least some of the higher costs on to consumers.
According to ICICI Securities, the revised duty implies a 22 percent to 28 percent increase in overall costs for cigarettes measuring 75 to 85 millimetres in length.
"Cigarettes longer than 75 mm account for roughly 16 percent of ITC's volumes and are likely to see price increases of two to three rupees per stick as a result of the levy," the brokerage said.
The new excise duty will be in addition to the existing 40 percent Goods and Services Tax, according to the government order.
