Cigarette Stocks Crash: Cigarette stocks crashed due to budget shock, ITC fell heavily due to news of increase in GST rates.

News India Live, Digital Desk: There was an uproar in the stock market today in the shares of cigarette manufacturing companies. Shares of big giants like ITC, Godfrey Phillips and VST Industries fell amid the news of increase in GST rates by the government. As soon as the trading started, huge selling was seen in these shares, due to which investors suffered a loss of crores of rupees. Market experts believe that this increase in tax will have a direct impact on the margins of companies, which may also lead to a rise in cigarette prices in future.

Big dent in ITC and other shares, investors shocked

Shares of cigarette sector giant ITC fell by 3-4% in this morning’s session itself. At the same time, the shares of Godfrey Phillips saw a decline of more than 5%. Shares of VST Industries were also in bad shape and were seen trading in the red. In fact, speculations about change in cess or tax slab on tobacco products in the GST Council meeting have spoiled the market sentiment. Investors are afraid that due to higher prices the demand (volume growth) of cigarettes may decrease.

Why are shares falling? What is the whole matter of GST?

There was talk for the last few days that the government may increase the tax burden on tobacco and related products. Under GST, these products falling under the category of ‘Sin Tax’ already attract heavy tax. Now, due to the possibility of implementation of new rates, brokerage houses have also changed their ratings on these stocks. Increase in taxes simply means that companies will have to increase their input costs or pass the burden on to customers, which is sure to put pressure on profits.

Opinion of brokerage houses: What should investors do now?

Stock market experts say that this decline in cigarette stocks could be an immediate reaction. However, this is a matter of concern for long-term investors as frequent changes in tax affect the sustainability of the business. Some analysts believe that companies like ITC can withstand this shock on the strength of their FMCG and hotel business, but problems may increase for companies with pure cigarette business.

Will cigarettes become expensive?

If there is an official announcement of increase in GST rates, companies will definitely pass the burden on to customers. This means that in the coming days, an increase of 5 to 10 percent may be seen in the retail prices of cigarettes. At present, the market is waiting for the government to clarify the situation, only after which the movement of these shares will be stable.