Indian state’s plan to ban liquor hits liquor stocks, brings cheers to women

As chief minister of India’s Bihar state Nitish Kumar Thursday announced a ban on the sale of liquor from April 1 2016, hopes rose for poor families while liquor makers fell.

prohibition

Socialist leader Nitish was only fulfilling a promise he had made to the voters of the state where rise in liquor consumption is a major cause for domestic violence and crimes, particularly against women,

The move will cost Bihar, which is not an affluent state like Gujarat or Maharashtra, Rs 3,400 crore in tax revenue.

Nitish says he is ready to explore other revenue-generating avenues to compensate for the loss as his top priority is to bring smiles on the faces of the poorest of poor by making the state liquor-free.

His announcement at an official function to mark the Prohibition Day, however, sent stock prices of liquor makers crashing at a time when India has emerged as a hotly-contested market for global drink makers such as Diageo and Pernod Ricard.

Shares of United Spirits fell 3.6%, United Breweries was down 2.9% and Radico Khaitan slumped 7.5%.

Investors fear more states may follow the Bihar way. Consumption of alcohol is already prohibited in Gujarat, Kerala, Manipur, and Nagaland.

Ajay Alok, a spokesperson for Nitish Kumar’s party Janta Dal (United), told a channel that the final modalities of the ban are being worked out.

Stock market analysts, however, don’t look worried.

“At such times, street tends to act more fearful and extrapolate things,” Rajat Rajgariah, head of research, at Mumbai-based brokerage Motilal Oswal told Economic Times. “This is more of a sentiment dampener than a number dampener.”

According to Rajgariah, the actual impact on the revenue of the companies could be less than 3%.

“There are high chances of bootlegging or smuggling of liquor from the neighbouring states. While it is a short-term negative news, the fall could be an opportunity to buy into liquor stocks,” Rajgariah told the paper.

A buy side analyst working with a domestic mutual fund house was more concerned about the rules Bihar is going to formulate on the liquor ban.

He rules out a blanket ban on alcohol. Instead, it would be prohibition. Moreover, despite government bans, liquor sales will continue as smuggling increases.

Bihar has witnessed a sharp rise in liquor shops in the past few years. The number of liquor vendor licenses allotted in the state rose to 5,467 in 2012/13 from 3,436 in 2006/07, official data shows.



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