Cigarette stocks gain ground despite excise duty hike; ITC up over 9%

Led by ITC, cigarette stocks on Tuesday surged by up to 9% despite a hike in excise duty on tobacco products.

The shares of ITC surged 9.06% to Rs 322.60 on the BSE. The stock was the biggest gainer among the 30-Sensex blue-chips on the stock exchange. 

At 1313 hours, the shares of ITC were trading up 9.26% or Rs 27.40 at Rs 323.20 per scrip on the BSE. 

Other cigarette stocks also attracted buying, with Godfrey Phillips India trading higher by 3.15%, Golden Tobacco by 2.82% and VST Industries by 2.61%.

In the previous session also, the cigarette stocks had recovered after falling sharply on the excise duty hike announcement.

ALSO READ: Budget 2016: From Gold Flake to Wills Classic, here's how much your cigarette will cost now

"The hike in excise duty on tobacco products has been less aggressive than in the previous two years. We had anticipated some hike in excise duty on cigarettes. In our view, cigarette manufacturers would pass on the hike in the duty to consumers," Angel Broking said in a report.

The excise duty on cigarettes was hiked on Monday for the fifth year in a row as the government has continued the crackdown on consumption of tobacco and allied products.

"To discourage consumption of tobacco and tobacco products, I propose to increase the excise duties on various tobacco products other than beedi by about 10-15%," said Finance Minister Arun Jaitley while presenting the Budget 2016 on Monday.

Last year, in the Budget, the government had increased excise duty on cigarettes by 25% for cigarettes of length not exceeding 65mm and by 15% for cigarettes of other lengths, citing the need for promotion of public health.