Shares of cigarettes manufacturers such as Godfrey Phillips, VST Industries and ITC came under pressure in the early trade on Tuesday on reports that the government is working on a proposal to completely ban foreign direct investment (FDI) in the tobacco sector.
The ban would eliminate the possibility of indirect flow of overseas funds to the tobacco sector. ITC, Godfrey Philips and VST had raised serious concerns over this move.
On the news, Godfred Phillips shares tanked as much as 13 per cent in the early trade on BSE. The scrip was trading 12.78 per cent down at Rs 985 (at 9.26 am). ITC and VST Industries were trading 1.09 per cent and 2.61 per cent down at Rs 317.50 and Rs 1,605, respectively at the same time.
At present, FDI is permitted in technology collaboration in any form, including licensing for franchise, trademark, brand name and management contract in the tobacco sector. However, it is prohibited in manufacturing of cigars, cigarettes of tobacco and tobacco substitutes.
According to sources, the Commerce and Industry Ministry is proposing to even ban FDI in licensing for franchise, trademark, brand name and management contract in the sector. It would eventually mean that FDI would be totally banned in tobacco segment in any form.
(With inputs from PTI)