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Tobacco stocks up in smoke as govt mulls FDI ban

Shares of cigarette companies plummeted up to 20 per cent on Wednesday amid reports that the Union Cabinet is likely to consider a proposal to completely ban foreign direct investment (FDI) in the tobacco sector.

Reacting on the news, shares of Godfrey PhillipsBSE 6.81 % hit the lower circuit and closed 20 per cent down at Rs 918.80 on Wednesday. Shares of other tobacco companies such as ITCBSE 0.72 % and NTC IndustriesBSE -5.14 % slipped 4 per cent and 0.65 per cent, respectively. The benchmark BSE Sensex closed almost flat at 26,298.

The Commerce and Industry Ministry has forwarded the final note on this issue to the Union Cabinet for consideration, sources told PTI.

At present, FDI is permitted in technology collaboration in any form, including licensing for franchise, trademark, brand name and management contracts in the tobacco sector. However, it is prohibited in manufacturing of cigars, cigarettes of tobacco and tobacco substitutes.

The proposal, if approved, may be a setback for domestic cigarette manufacturers, according to the report.

The ban would also eliminate the possibility of indirect flow of overseas funds to the sector. FDI into the country grew by 29 per cent to $40 billion in 2015-16.

On a year-to-date basis, most of cigarette-related companies have been outperforming the benchmark equity indices. Stocks such as Golden TobaccoBSE 1.58 % and VST IndustriesBSE 4.29 % have risen 33.36 per cent and 33.32 per cent to Rs 65.55 and Rs 2268.25 till November 15 from Rs 49.15 and Rs 1701.30, respectively, on January 1.


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