The recent Karnataka government’s decision to add alcohol tax, especially for beer, have provided the initial impetus for market experts’ debate and have made brewery stocks the highlights of the upcoming week. By imposing such belt, as proposed in Karnataka Budget 2024, the government has raised doubts about the statewide effect in the short t
According to Avinash Gorakshkar, head of research at Profitmart Securities, alcohol duty which forms a part of budget was increased for the second time within a year. The July 2023 excise duty hikes for both beer and Indian-made foreign liquor were followed by the recent changes, which led to the focus on top players in the liquor industry such as United Breweries, United Spirits, Radico Khaitan and the Global Spirits.
Mr. Yashovardhan Khemka, Senior Manager — Research at Abans, examined the broad impact of the new draft of Karnataka’s Budget 2024 in the context of famous liquor brands in India. Brett emphasized that the companies that mainly deal with beer manufacturing and distribution are going to be more affected than those having a production focus on spirits. However, Karnataka’s already the highest priced state for liquor in this region, alcohol, especially for beers, is often in the mix of affordability issues, particularly for premium brand.
The data shows that the bulk of liquor sales in Karnataka come from the lower and medium price zones, although premium brands have only a smaller share. This sheds doubts about the potential limitations towards the growth of premium brands in the midterm period, and their geographic extent.
Khemka stressed the importance of monitoring market reaction on Monday mainly by indicating that the liquor is almost an inelastic commodity which means that an increase in duty would only influence the sales during the short term. Nonetheless, the prior implementation of excise duty hikes did not lead to a slump in beer sales but rather caused a jump in sales in 2023, indicating that customers still demanded and preferred beers in spite of price pressures.
But, imposition of duties provokes questions on trade flows and consumer taste which requires investors to be vigilant and consult with experienced advisers when taking investment decisions.
