It is believed that before the election, the demand for liquor increases, so investors buy shares of the liquor companies these days.
However, the past data and the management commentary don’t support the logic.
Market trade analysts are of the view that although there is a rally in the stocks, investors should use this opportunity to exit as many states which have high debt might increase duties on liquor that will ultimately reduce their sales.
United Breweries, Radico Khaitan, GM Breweries, Global Spirits and Tilaknagar Industries had lost 5-28% in April-May 2014 during the last Lok Sabha elections, while the Sensex had gained 7% in the meantime.
United Spirits and other liquor companies recently said that they are looking at some uncertainty in the liquor business during the election season. These companies said that there would be dry days during the polls and the production will be affected by this.
G Chokalkalingam, CEO of Equinomics Research Advisory said, “It is believed that the sale of liquor will increase during the elections. However, at least this time it is not going to happen. ”
‘Shares of liquor companies have already become very costly.
Many states have increased tax on the liquor and other states may follow soon. So the investment in the liquor companies before the elections would not be prudent, he added.