A 40% GST on tobacco and tobacco products had already been imposed. The GST will come into effect from February 1. As a result, cigarette prices will increase anyway. Along with this, the centre is imposing new health and national security cess on tobacco, cigarette spices and chewing tobacco. This will further increase the prices of all types of cigarettes.
The centre has fixed the duty rate based on the length of cigarettes. According to calculations so far, it is believed that the price of preferred cigarettes may increase by up to 15 per cent. The impact of this step has been seen on the share prices of tobacco and cigarette manufacturing companies. On both January 1 and January 2, declines were witnessed in the stock prices of ITC, VST Industries, and Godfrey Phillips India.
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ITC has an almost monopolistic business in India's tobacco products trade, especially in cigarettes. ITC's stock price fell by about 8 per cent on January 1 and by about 4 per cent on January 2. ITC is a highly preferred stock for many investors in the Indian stock market. Many people invest in this stock both for long-term and short-term purposes. Many are concerned due to such a sudden shock in the stock price. What should be done at this time? SEBI-registered research analysts informed Ei Samay Online.
What is the future of ITC's stock?
SEBI-registered research analyst Sudip Brahmachari says that currently, 40-42% of ITC's revenue comes from the cigarette business. According to him, the company's management had understood long ago that it could not depend entirely on income from tobacco products. That is why ITC started expanding its business long ago. According to Sudip Brahmachari, "ITC cannot now be called just a cigarette manufacturing company. The paper business is doing well, agriculture-dependent business is also doing well." He says, "This announcement will definitely have a short-term impact, resulting in a correction in stock prices. Investors can accumulate ITC around 340."
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Pradip Haldar, founder and CEO of PhD Capital, says there will definitely be a negative effect in this situation. However, ITC's entire business does not come from cigarettes, so the impact is somewhat less. On the other hand, Godfrey Phillips has been severely hit. That company's stock fell 17% on January 1. He says, "This impact will remain for the next 2, 4 or 5 days. This is a short-term sentimental reaction." His advice is that if you look at history, you will see that cigarette companies increase cigarette prices at this time. Then it increases again in turn. Pradip Haldar says, "However, if you have a short-term view, absolutely no fresh entry. This view will remain negative for the next 6-9 months. If you take a 2-3 year view, this will be corrected."
