A BAN on sales of liquor next to highways in India is expected to put a dampener on Diageo’s first half performance.

In a brief trading update, the drink giant’s chief executive said sales growth would be impacted by the highway ban, as well as the later timing of Chinese New Year.

The owner of 28 Scotch malt whisky distilleries saw its shares take a 2.78 per cent knock yesterday on the announcement, closing the day down 69.5p to2,426.5p.

Ivan Menezes, chief executive, said that in spite of the net sales impact, “our business continues to strengthen through improved marketing, innovation, and commercial execution, and we are well set up to deliver in line with our expectations”.

This view was echoed by James Edwardes Jones, analyst at RBC Capital Markets, who said the statement reaffirmed full-year expectations, but noted the both sales and margin growth will be weighted to the second half.

“Later Chinese New Year and the Indian highway ban are blamed for the phasing of sales growth: we don’t see anything sinister about this, but given both of these were known about at the time of the full year results back in July we wonder why it wasn’t pointed out then,” he added.

Diageo is the second major spirits player to cite the highway ban, after French group Pernod Ricard said its sales had also been hit by the legislative move in India.

The so-called highway ban was implemented across India on April 1. It bans the sale of alcohol within 500 metres of a state and national highway, meaning huge numbers of bars, hotels and shops are now completely dry.

The ban was initially intended for shops, but hours before its introduction the Indian Supreme Court ruled bars and restaurants would also be subject to the legislation.

Introduced as a way of reducing deaths by drink-driving, the ban has caused huge controversy among businesses in India, with billions of dollars of revenues estimated to be lost.

Last month Pernod Ricard noted a one per cent increase in sales in India for the full year, with the stalled growth coming because of the “dampening effect” of the highway ban in its fourth quarter. The group expected this impact to continue into the first half of 2018.

India, where sales grew two per cent for Diageo last year, has become an increasingly important market for the global spirits industry, and Diageo in particular has heavy exposure there since the 2014 acquisition of a majority stake in United Spirits.

United Spirits operates 23 manufacturing units in India and Nepal and leases one manufacturing facility, while United Spirits and Diageo brands are produced under licence by third-parties in 36 manufacturing units across the country.

Of the company’s total sales of £18.1 billion last year, more than £3bn came from India, having grown 22 per cent, with the country now representing 16.6 per cent of Diageo’s total business.

Diageo expects 500 million people will reach the legal age to purchase alcohol over the next decade, with more than half expected to come from India and Africa.

In the trading update, Mr Menezes said that previously announced increases in investment behind its Scotch whisky and US spirits brand would weight expansion in operating margin towards the second half.

“Underlying momentum and progress in implementing productivity gives us continued confidence in our ability to deliver sustainable growth,” he added.