New year cheer seems to be missing for ITC shares that have plunged almost 10% on Thursday, January 01, to their lowest level in nearly three years after the government announced excise duty on tobacco products effective February 1.
According to a Finance Ministry notification last evening, cigarettes will be charged an excise duty ranging from ₹2,050 to ₹8,500 per 1,000 sticks. The latest levy is in addition to the higher goods and services tax (GST) rate of 40% applicable on cigarettes, tobacco and other similar products from February 1 as well.
A Bloomberg report, citing Jefferies analysts, said that higher charges imply a tax hike of over 30% if National Calamity Contingent Duty continues.
Following this, ITC shares plunged 10% to their lowest level since January 30, 2023, on an intraday basis to ₹362.70. The Bloomberg report also suggested that it was the worst single-day fall for ITC stock since 2020, making it the biggest Sensex loser today.
ITC sells cigarette brands like Classic and Gold Flake. Godfrey Phillips, manufacturer of Marlboro and Four Square, plunged 19% in intraday deals.
Analysts foresee a negative impact on sales as this move could likely increase cigarette prices.
“While we are still unsure on the final outcome, if confirmed, this will be a clear negative as volumes will be impacted and concerns would also re-emerge on risk of losing some volumes to illicit industry,” Jefferies analysts were quoted by Bloomberg as saying. Mint could not independently verify this.
The brokerage has estimated that ITC would need to hike cigarette prices by “at least 15%” to pass on the overall impact to consumers.
ITC: Time to buy the dip?
The sharp correction in ITC following the excise duty hike should be viewed more as a sentiment-driven adjustment than a structural reset of fundamentals, said Harshal Dasani, Business Head at INVAsset PMS.
He said that historically, cigarette tax hikes tend to trigger immediate stock price reactions as markets discount near-term volume pressure and margin uncertainty. “However, over time, the actual earnings impact has often been more measured, given the industry’s ability to pass on taxes through calibrated price increases.”
G Chokkalingam, Founder, Equionomics Research, sees multiple overhangs on the ITC stock as he remains doubtful over its ability to give any meaningful returns.
He said that the government will likely keep raising duties on cigarette companies due to GST cuts across many consumer products. The government in September 2025 reduced the tax rates on several products to boost consumption amid a massive 50% tariff on Indian exports by the US, one of the highest in Asian economies.
Chokkalingam said that the highly profitable hotel business is no longer a direct part of it. “The paper segment is doing badly, the IT services segment has also not shown significant profit growth, and other FMCG growth also remains slow. Further, equity selling by its largest shareholder, British American Tobacco Plc, is also possible, leading to more pressure on the stock price front,” he said.
Against this backdrop, the market veteran said that in the best-case scenario, ITC is just a HOLD after today’s meltdown.
According to Dasani, for long-term investors, such policy-led drawdowns often create opportunities to accumulate high-quality, cash-rich businesses at more reasonable valuations. “Near-term volatility cannot be ruled out until there is greater clarity on pricing actions and volume trends over the next few quarters.”
As per Trendlyne data, 23 analysts have ‘Strong Buy’, 10 analysts have ‘Buy’, and one analyst has each ‘Hold’ and ‘Sell’ ratings on ITC stock.
ITC share price has slumped 24% in a year, and is down 12% in six months.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
