MUMBAI: Liquor and cigarette makers were the first choice for investors when the economy reaped benefits from the reopening. Strategic trading has reaped dividends with the shares of these companies rising 10-50 per cent in the last three months. However, risks to the sin goods sectors – particularly government action – are rising sharply.

For liquor companies, the basic business environment is strong as clubs, restaurants and bars are easing up after the easing of Covid restrictions. Moreover, the uptick in travel and tourism in the past few months has also created optimism among investors. That said, analysts fear that the risk of higher taxes on alcohol has increased sharply over the past week as various state governments have slashed the ad valorem on retail fuels to match the Centre’s move to cut excise duty on petrol and diesel. Taxes have been reduced.

In order to reduce the burden on consumers’ wallets, 22 states have cut Value Added Tax on retail fuel. However, fuel and liquor taxes are the two biggest sources of revenue for the state governments. With one reduced, the other is often squeezed to bridge the gap. “Due to this cut, states will have to meet the shortfall elsewhere and, therefore, have to impose more on liquor taxes,” Avnish Roy of Edelweiss Securities said in a note.

He said investors should weigh less on cigarette stocks due to the high risk of raising taxes on tobacco products in the coming budget. The Center has avoided raising taxes in the last two years. But with the formation of a new panel to look into cigarette taxes in partnership with the WHO, the risk of overtaxing smoking was greater. “We see a 100 per cent chance of a hike in cigarette taxes on the February 1 budget. The quantum remains to be seen, but we expect a hike of 10 per cent, especially given the latest tax cut in petrol,” said Roy said.

Shares of cigarette companies have been under pressure since the announcement of the panel on cigarette tax. For

, which recently began participating in the ongoing bull market, higher taxes are bad news as it can lead to a loss in the volume and market share of illicit cigarettes.

One sector analysts are optimistic about the multiplex sector. box office response
sooryavanshi The Diwali weekend has fueled hopes that the sector may finally see a lasting recovery.

Cinema owners have been one of the biggest losers in the pandemic as the Covid restrictions have led to the closure of many small theaters. Analysts said PVR and Inox Leisure had a chance to garner market share from weaker players as several big Bollywood films were about to hit the screens in winter.