ITC Ltd shares suffered a sharp sell-off on Thursday as fresh tax worries rattled investor confidence. The stock tumbled more than 5%, touching a 52-week low of ₹345.35, after the government announced a new excise duty on cigarettes and tobacco products.
The fall came just a day after the stock had already dropped nearly 10%, wiping out thousands of crores in market value. With investors anxious about how the new tax will impact ITC’s profits, the key question now is — is this a buying opportunity or a warning sign?
What Triggered the Fall in ITC Ltd Shares?
Late on December 31, the Finance Ministry issued a notification introducing a new excise duty on cigarettes. This tax will apply from February 1, 2026, and will be charged in addition to the existing 40% GST on tobacco products.
Under the new rules, cigarette makers will have to pay between ₹2,050 and ₹8,500 per 1,000 sticks, depending on the length of the cigarette. Longer and premium cigarettes will face the highest burden.
For a company like ITC — India’s largest cigarette manufacturer — this change directly hits its most profitable business.
Why Investors Are Nervous
Analysts warn that the new duty could significantly increase production costs for certain cigarette categories.
Brokerage firm ICICI Securities estimates that the new tax could raise costs by 22% to 28% for cigarettes in the 75–85 mm segment. This category contributes around 16% of ITC’s total cigarette volumes, making it a sensitive area for margins.
To protect profits, ITC may have to increase cigarette prices by ₹2–3 per stick, which could lead to a drop in demand, at least in the short term.
After the sharp fall in the stock, ICICI Securities also advised traders to exit their ITC January futures positions, as the stop-loss levels were hit.
How Has ITC Stock Performed Recently?
The recent decline has been brutal:
- Down 25% in the last one year
- Down 16% in six months
- Down 14% in three months
- Down 13% in one month
This steady fall shows how worried the market is about regulatory risks around tobacco.
Should You Still Buy ITC Shares?
Brokerage firm Religare believes the stock could remain under pressure in the near term. Higher taxes may hurt volumes and margins as ITC adjusts its pricing strategy.
However, Religare also points out that cigarette demand in India has historically remained largely inelastic. Even after price hikes, many consumers continue to buy, helping companies recover margins over time.
More importantly, ITC is no longer just a tobacco company.
ITC’s Diversification Could Offer Protection
Over the years, ITC has built strong businesses outside cigarettes:
- FMCG brands like Aashirvaad, Sunfeast and Bingo
- Hotels and hospitality
- Agri-business and exports
These segments now contribute a growing share of ITC’s profits and help cushion the impact when tobacco faces regulatory pressure.
Religare believes ITC’s pricing power, cost control, and diversified revenue base will help it absorb the tax shock over the medium to long term.
What Happens Next?
Brokerages are now waiting for ITC to announce how it plans to deal with the new tax — whether through price hikes, cost cuts, or product changes. Earnings estimates and valuations may be revised once the company shares its strategy.
Until then, volatility in the stock is likely to continue.
Final Verdict
The new tobacco excise duty has undoubtedly hurt ITC in the short term, and investors should be prepared for some turbulence. But for long-term investors, the company’s strong brands, pricing power, and expanding non-cigarette business still make it a stock worth tracking closely.
Whether this fall becomes a value opportunity or a value trap will depend on how well ITC manages the tax shock in the coming months.