Cigarette stocks tank, post news on banning FDI in Tobacco sector

The shares of Indian cigarette manufacturers are down up to 15 percent on Tuesday on an intra-day basis. Godfrey Philips, Golden Tobacco, ITC and VST Industries are all reeling under pressure from the latest news on GoI’s intention to execute a 100 percent ban on FDI in tobacco sector.

The move is seen as important, India being one of the signatories to the WHO Framework Convention on Tobacco Control (WHO FCTC). The WHO FCTC was developed in response to the globalisation of the tobacco epidemic. India on its part has agreed to take measures leading to reduction in tobacco consumption.

In 2010, the FDI in cigarette manufacturing was banned in India and it was decided that no new FDI proposal will be entertained by the GoI. The move in 2010 when Kamal Nath was the commerce minister of India drew lot of criticism from Global cigarette manufacturers accusing India of adopting protectionist policies. As of now, for tobacco industry, FDI in manufacturing of cigars and tobacco substitutes is banned. However FDI in technology collaboration of various natures is permitted, including licensing for franchise, trademark, brand name and management contract. According to certain media reports, the commerce and industry ministry is proposing to ban FDI in various technology collaborations, thus banning any form of FDI investment in tobacco sector.

Godfrey Philips is the worst hit among the pack of cigarette manufacturers and is trading 15 per cent lower on an intra-day basis on Tuesday. Golden Tobacco is down by almost 3 per cent, VST Industries is down 2 per cent and ITC by almost 1 per cent. With the new initiative by GoI on banning FDI in tobacco sector, the players in tobacco sector have more reasons to complain as they already are apprehensive of the directive of placing larger pictorial warnings covering 85 per cent of the packaging space.