Tobacco majors ITC and Godfrey Phillips were the subject of early losses on Thursday as the government upped the ante on promotions of cigarette smoking.

The two stocks lost 1.6% to Rs 631.75 and 0.3% to Rs 319, respectively. ITC witnessed thin volumes of 5,800 shares on BSE in 15 minutes of trading. Godfrey Philips, which is usually thinly traded, turned out volumes of a mere 60 shares.

Today's fortunes contrast with the fact that the combined market cap of four cigarette making companies climbed 1.9% in the last one week ended 19 February 2003 to Rs 16,399.69 crore (Rs 163.99 billion). But for the one-month period ended 19 February 2003, their market cap had declined 5.3%. Cigarette major ITC dominates the cigarette sector's market cap.

The Union Cabinet on Wednesday cleared the amended Cigarette and other Tobacco Product (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Bill. The bill is aimed at imposing a total ban on advertisement of tobacco products on all types of print and electronic media. The bill will also empower the government to restrict the sale of these products around educational institutions. The bill is expected to be introduced in the current session of Parliament.

The objective of the bill is to protect non-smokers from the hazards of passive smoking, discourage new entrants, including adolescents from consuming tobacco products and those consuming tobacco products to give up its use.

The government has already banned smoking in public places. The cigarette industry is already grappling with a plethora of taxes besides having to combat cheap contraband cigarettes.

The sharp increase in cigarette prices triggered an unprecedented supply of cheap smuggled cigarettes from neighboring countries.

Even though there was no hike in levies on cigarettes in the 2002 Union Budget, the industry could not recover lost volumes due to several factors including the imposition of fresh state taxes, the enacted or proposed ban on outdoor advertising and cigarette smoking in public places by several state governments, continued availability of cheap smuggled cigarettes, increasing awareness of the health hazards associated with smoking, sluggishness in rural demand and continued recession of Indian industry.

India is the second largest producer of tobacco and the third largest tobacco consuming country in the world. ITC is the dominant player in the cigarettes segment with a 66% market share.