Ban on sale of loose cigarettes: ITC's stock drop 5% to Rs 355

Investors got yet another evidence of the overhang of regulatory risk on ITC stock. The cigarette maker’s stock dropped 5% to Rs 355.70 on Tuesday on news that the health ministry has accepted the recommendation of expert panel to ban the sale of loose cigarettes. The stock has remained range-bound after hitting a new high of Rs 386.75 in May this year.

The Street’s reaction seems to be strange as stringent regulations aimed at curbing smoking were always a major risk factor for the ITC stock. The stock had, in fact, appreciated 2% when the government notified guidelines on new pictorial warnings for cigarette packs and other tobacco products last month.

Negative sentiment in the ITC stock led to the Sensex closing in red. The regulatory policy on cigarettes will be a critical development to watch out for all market participants since ITC commands the highest weight in the Sensex. Other measures being mooted by the government include increasing size of health warnings on cigarette packets, raising age limit of tobacco consumption from 18 years to 25 years and increasing fine for smoking in public.