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Decoding the budget impact on tobacco, cigarette and alcohol related stocks
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4 min read | Updated on July 18, 2024, 18:27 IST
SUMMARY
Tobacco, cigarettes and alcohol companies face high ‘sin taxes’ to discourage consumption and increase revenue. The upcoming budget is likely to maintain the trend, with experts calling for higher excise duties on tobacco. Analysis of the performance of top stocks in these sectors during budget periods reveals significant fluctuations, highlighting the impact of fiscal policies on stock prices.
Decoding the budget bite on tobacco, cigarette and alcohol related stocks during past budgets
Tobacco, cigarettes, and alcohol are considered harmful and are thus heavily taxed by tax authorities.The high tax on these products aims to discourage consumption, serving the dual purpose of promoting social welfare and generating revenue.
The government is expected to continue increasing these taxes in the upcoming budget. According to a PTI report, a group of medical professionals, economists, and public health experts has requested an increase in tobacco excise duty to reduce consumption.
Top 6 Stocks in the Tobacco, Cigarette, and Alcohol Sectors
| Segment/Product | Stocks | M-Cap in ₹ Crore | Last One Month Return in % | Last 12 Month Return in % |
|---|---|---|---|---|
| Tobacco | ITC | 581,627 | 8.62% | -1.41% |
| Tobacco | Godfrey Phillips India | 23,001 | 4.17% | 170.41% |
| Tobacco | VST Industries | 6,408 | -1.19% | 14.91% |
| Alcohol | United Breweries | 55,078 | -0.47% | 37.44% |
| Alcohol | Radico Khaitan | 22,759 | -4.43% | 23.54% |
| Alcohol | GM Breweries | 1,899 | 32.10% | 74.14% |
Understanding the performance of the stock prices of the above companies during the budget period (pre, post, and on the budget day). The pre-budget period is considered one month before the budget, and post is considered one month after the budget day.
Changes in stock price on budget day during last 5 full-budget (Source - NSE)
| Stocks | 2019 | 2020 | 2021 | 2022 | 2023 |
|---|---|---|---|---|---|
| ITC Ltd | 0.65% | -6.76% | 6.25% | 3.43% | 2.57% |
| Godfrey Phillips India | -1.71% | -6.49% | 1.12% | 2.17% | -5.36% |
| VST Industries Ltd | -0.84% | -4.57% | 2.43% | -0.46% | -2.08% |
| United Breweries Ltd | 0.95% | 1.25% | -1.26% | 1.93% | -1.03% |
| Radico Khaitan Ltd | -2.93% | -2.25% | 4.75% | -1.33% | -0.95% |
| GM Breweries Ltd | -6.73% | -0.81% | 0.46% | 0.35% | -0.44% |
From the above table, it's clear that barring ITC and United Breweries, which have given positive returns on the day of budget four and three times, respectively, the remaining stocks usually tend to deliver negative performance.
Change in stock price one month before budget during last 5 full -budget ( Source - NSE)
| Stocks | 2019 | 2020 | 2021 | 2022 | 2023 |
|---|---|---|---|---|---|
| ITC Ltd | 0.69% | -1.24% | -4.96% | 0.99% | 5.87% |
| Godfrey Phillips India Ltd | -7.61% | -6.20% | -7.28% | -0.96% | -2.80% |
| VST Industries Ltd | -4.47% | 4.04% | -5.94% | 0.66% | -8.48% |
| United Breweries Ltd | 3.94% | -0.77% | 9.85% | 2.09% | -6.33% |
| Radico Khaitan Ltd | -1.20% | 23.51% | 7.22% | -12.97% | 9.95% |
| GM Breweries Ltd | -3.75% | -7.13% | -8.64% | -16.02% | -8.23% |
From the above table, we observe that Radico Khaitan, United Breweries, and ITC delivered a positive performance in the pre-budget period, i.e., one month before the budget.
Change in stock price one month after budget during last 5 full -budget (Source - NSE)
| Stocks | 2019 | 2020 | 2021 | 2022 | 2023 |
|---|---|---|---|---|---|
| ITC Ltd | -7.03% | -9.90% | -4.19% | -5.23% | 4.23% |
| Godfrey Phillips India Ltd | -15.31% | 1.29% | -2.77% | -10.19% | -2.45% |
| VST Industries Ltd | 0.28% | -3.97% | -5.05% | -5.32% | 4.28% |
| United Breweries Ltd | 2.05% | -2.66% | -7.37% | -9.06% | -8.18% |
| Radico Khaitan Ltd | -0.79% | 5.92% | 15.98% | -15.80% | 3.98% |
| GM Breweries Ltd | -18.56% | -2.40% | 4.80% | -10.95% | -4.76% |
In the post-budget period, i.e., one month after the budget, Radico Khaitan has delivered positive returns three out of five times during the last five budgets. On the other hand, stocks like ITC, Godfrey Phillips India, United Breweries, and GM Breweries have eke out positive gains in one instance out of five.
Conclusion
High taxes on tobacco and alcohol remain a key fiscal policy to curb consumption, address public health, and increase revenue. However, these taxes cause stock price fluctuations in major companies, prompting market participants to monitor tax changes closely.
The above data would help you understand how the stocks perform after the budget day, during the budget day, and one month after the budget day.
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