InvestorQ : Why did ITC stock correct so sharply on Wednesday 06 January?
Katherine Gonsalves made post

Why did ITC stock correct so sharply on Wednesday 06 January?

rhea Babu answered.
2 years ago

ITC has had a smart rally over the last few months as many investors saw it as a cheaper proxy for the other FMCG names like Hindustan Lever, Colgate and Britannia which had all become extremely pricey. However, like in the past, there was another dampener for the ITC business resulting in the stock correcting by nearly 3% on Wednesday.

The stock was spooked in the markets by the proposed new government Draft Plan which could likely be deeply negative for the cigarette industry. One of the major recommendations of the bill is that it proposes to raise the minimum smoking age from 18 to 21 to reduce the number of smokers in the country and keep the youth out.

In addition, the new bill also proposes to restrict the sale of cigarettes in any form within 100 metres vicinity of any educational institution. This rule has been in existence but was never enforced strictly. Now the government will make that a central rule and also make it applicable performance across states. The new bill will also ban sale of loose cigarettes.

To add to all these, the government also plans to ban smoking in public places altogether. Like in many of the Southeast Asian countries, the government is also looking to create smoking zones where people can smoke without impact others. While ITC has managed to successfully diversify into FMCG, hotels and agri businesses, the unfortunate part is that 85% of profits still come from cigarettes, making the stock very vulnerable.