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Shares of tobacco companies fell sharply on Tuesday after the government said today that it has accepted the recommendations of an expert panel which has proposed banning the sale of loose cigarettes.

The panel has also suggested increasing the minimum age for those who can buy tobacco products and has proposed a bigger fine for violation of provisions of the Cigarettes and Other Tobacco Products Act, 2003.

Health minister JP Nadda said in a written reply in the Rajya Sabha that "the Ministry has accepted the recommendations and a draft note for Cabinet has been circulated for consultation."

The recommendations will now be put before the Cabinet and will require a Parliament nod before they are implemented.

Nearly 70 per cent of all sales are from loose cigarettes - many cannot afford to buy a packet of 10 cigarettes at an average Rs 190

Analysts say sales will take a 10 to 20 per cent hit if these proposals are made the law. The cigarette industry contributes Rs 25,000 cr in tax revenue, but health concerns are expected to override the loss from that.

Indians smoked more than 100 billion cigarettes in 2012, according to Euromonitor International.

All tobacco companies fell sharply after the news broke. ITC, India's biggest cigarette maker, fell nearly 7 per cent to a day low of Rs 348.60, while Godfrey Phillips, which manufactures Red & White brand of cigarettes, slumped as much as 11.5 per cent to an intraday low of Rs 2,880.

ITC is also the most influential stock in the blue chip Nifty index, so the selloff in the stock also impacted the broader markets. The Sensex snapped a three day winning streak and closed 161 points lower at 288,338.

At the end of trade, ITC closed 5 per cent lower at Rs 355.70, while Godfrey Phillips declined 9 per cent to close at 2,965.95.

Among other stocks, Golden Tobacco closed 7.6 per cent lower, while VST Industries shares ended down 2 per cent.