Budget 2024: Cheers or Tears for Booze-related Stocks?

The effect of the budget on companies linked to booze-related stocks such as tobacco, cigarette, and alcohol is a recurring concern for industry participants and investors alike. Annual budget announcements frequently introduce new tax laws, regulations, and public health programs that immediately impact these sectors as governments worldwide struggle with public health issues and budgetary constraints.

While alcohol stocks manage changes in consumption trends and licensing rules, tobacco and cigarette companies are subject to scrutiny over excise duties and marketing limitations.

Investors attempting to negotiate the intricacies of regulatory environments and predict market responses to budgetary adjustments in these delicate industries must comprehend these dynamics.

Government Measures on Tobacco, Cigarette and Alcohol

Nirmala Sitharaman, while presenting the Union budget 2024-25, has highly focused on Public Health and methods for generating revenue for the government. Hence, these are the measures taken on tobacco, cigarette, and alcohol consumption in the country-

Higher Excise Duty

The government has taken stern steps to increase the excise duty on tobacco, cigarettes, and alcohol. The budget for 2024-25 in India introduces key measures impacting alcohol and tobacco products, reflecting the government’s dual objectives of revenue generation and public health enhancement.

Stern Regulations

The government has made strict regulations that industries must follow to commence business activities in the country. Regulations are made on the packaging, advertising, and sale of cigarettes, tobacco, and alcoholic products.

The finance minister and the government believe that curbing tobacco use will mitigate the risk of cancer, lung diseases, and the liver health of the public.

Health Campaigns

Certain health campaigns will be held at different locations in this tenure to make people aware of the risks these harmful products contain.

The sole aim is to make the public informed about the diseases arising out of the consumption of cigarettes, tobacco, and alcohol. The Union Budget 2024-25 has also allocated a budget for carrying out these campaigns and reaching out the ultimate aim.

Product Tracking

The government has made plans to instil a tracking system so that the production of these products is limited and any illegal manufacturing or sale without licenses can be caught and curbed.

This ensures that whoever is producing, selling, or dealing with these products has to follow tax compliances with the authorities, or else the business will be termed illegal. It will also attract certain penalties, fines, and even sentencing.

Corporate Social Responsibility

Greater emphasis has been laid on the principle of corporate social responsibility that the bigger industries are required to conduct. This initiative will minimize the ill effects of alcohol, tobacco, and cigarettes, thereby leading to the responsible consumption of these products by the public.

These regulations and guidelines issued in Union Budget 2024-25 aim to minimize the health impacts of these products while maintaining a steady revenue stream. Now, the economic aspect is also covered, along with the health impacts.   

Budget Impact on Booze-related Stocks

The budget impact on tobacco, cigarette, and alcohol-related stocks has been huge since the government has increased the excise duty and the National Calamity Contingent Duty (NCCD). Look at the probable impact on booze-related stocks –

Tobacco and Cigarette Stocks

The major stock trading companies related to booze-related stocks in India such as tobacco and cigarette stocks are ITC Ltd, Godfrey Phillips India Ltd, and VST Industries Ltd. Although the government has increased certain taxes on the sale of these products, they are not hugely impacted by these hikes in taxes. NCCD has been hiked by 16%, but it will not impact largely on the prices; the hike will just cost 7-12 Paise per cigarette.

The hike per cigarette is on the lower side, so companies will be able to accommodate these taxes without taking a huge hit in their profits. Even if there is a price hike, it would be minimal, and this is why tobacco stocks have not taken a huge downside since the budget was announced.

Alcohol Stocks

The major stock trading companies related to alcohol stocks in India are United Breweries, Radico Khaitan, and GM Breweries. There are no particular tax adjustments for the alcohol industry included in the budget.

However, the broader economic policies that are being suggested, like more funding for infrastructure and rural development, may help the industry indirectly by increasing consumer purchasing power and overall economic growth.

Highly Impacted Tobacco, Cigarette, and Alcohol Stocks

There are a total number of 6 major booze-related stocks in India such as tobacco, cigarette, and alcohol-related stocks that are considered to be impacted by the Union Budget 2024-25. Let’s look at them and analyze the impact –

ITC Ltd.

The stock is performing relatively well in the financial market and is close to its all-time high. The stock has gained approximately 3.3% in the last 5 days, 11.8% in the last month, and 3% in the last 6 months. The growth of stock is not highly on the upper side but as far as the market is concerned, it has maintained its position in the market in the last 6 months.

The prices show that there has been a very low impact of the Union Budget 2024-25 on the tobacco, cigarette, and alcohol-related stocks.

Godfrey Phillips India Ltd

The stock has held its position in the last month or so since in the last 5 days it has gained only 1.76% whereas has declined about 1.45% in the last month. However, the Stock’s 6 monthly analysis doesn’t establish the same since it has gained around 92% in this tenure.

This shows that the additional taxes imposed on tobacco, cigarette, and alcohol-related products aren’t considerably high and these industries can bear them easily.

VST Industries Ltd

The stock has been on the rise in the last 6 months and is constantly gaining in the market. In the last 5 days, it has gained 8.8% in the market which is an unbelievable growth. It gained 12.6% last month and 31.3% in the last 6 months.

This establishes that there has been no huge loss to these booze-related stocks such as tobacco, cigarette, and alcohol since the introduction of Union Budget 2024-25.

United Breweries

The stocks of United Breweries have not been performing comprehensively well on the Indian Financial market in recent times. The stock has seen a 1.76% decline in the last 5 days whereas 2.7% in the last month. The stock has grown 10.45% in the last 6 months which justifies that there has been no significant impact of the Union Budget 2024-25 on the stock.

Radico Khaitan

Radico Khaitan can also be considered as a stock that has not shown an upward trend in the market in recent times. The stock has maintained its position in the last 5 days, whereas it has declined about 6% in the last month.

The stock has gained a mere 4% in the last 6 months which is not as per the trends. It can be said that the stock is performing well, but it is hard to say that it is because of the budget since it has been performing badly since the start of the year.

GM Breweries

GM Breweries has seen a decline of 9.8% in the last 5 days, still, the stock is performing relatively well on the market. It has gained a total of 24% in the last month, whereas the figure has risen to 51.5% in the last 6 months. It depicts that there is no significant impact of the Union Budget 2024-25 on these stocks and these tobacco, cigarette, and alcohol-related stocks are doing comparatively well in the market.  

Conclusion

It is anticipated that the 2024 budget will have little effect on Indian booze-related stocks linked to cigarettes, tobacco, and alcohol. Manufacturers will be able to withstand the minor price rise that results from the proposed 16% increase in the National Calamity Contingent Duty on cigarettes.

Broader economic initiatives to improve infrastructure and rural development may have an indirect positive impact on booze-related stocks by raising consumer purchasing power.

Frequently Asked Questions

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