FPIs sell liquor stocks as regulatory woes continue

MUMBAI: Foreign investors are not n high spirits about the liquor sector anymore. The shareholding data for the March quarter showed hat foreign portfolio investors FPIs) cut their stakes in many liquor makers due to the persistent regulatory woes, which have dampened future earnings prospects of these companies.

Data from the BSE showed foreign investors cut their holdings in United Spirits for the fourth consecutive quarter to 22.06%. They trimmed stake in Radico Khaitan to 17.86% in the March quarter from 18.73% in he December quarter. And in GM Breweries and United Breweries, they cut stake by 0.23% and 0.27%, respectively .

“Increasing regulatory headwinds in the last few years with some state governments banning liquor distribution in their states coupled with the latest Supreme Court ban on liquor shops within 500 metres of national and state highways across India is causing concern among investors. These concerns may have prompted some foreign investors to are their holdings in liquor companies,“ said Deepak Jasani, head of retail research at HDFC Securities.

On December 15, 2016, the Supreme Court had directed closure of liquor shops within 500-metre distance of state and national highways. The order came into effect on April 1.


“If some of the other larger states like Karnataka, Andhra Pradesh and Maharashtra also seek to introduce prohibition in a limited way or fully in the next few quarters, there can be further sentimental impact. As long as the sword (of regulatory woes) is hanging over them, any major upside will be capped," said Jasani. "The impact of the issues faced by the sector will reflect in the topline and bottomline in the next two quarters," said AK Prabhakar, head of research at IDBI Capital Markets.

Some investors, though, believe that the worst is in the price. Madhuri, wife of Reliance Capital's chief investment strategist Madhusudan Kela who is known for his multi-bagger stock picks, bought 0.53% in Radico Khaitan on Thursday, bulk deal data showed.

“The sector is out of favour now but I believe all issues are in the price.The liquor ban has taken place in states from which revenue contribution is not significant, and going forward the segment should do well due to demand from the hospitality industry," said Pankaj Pandey, head of research at ICICIdirect.