Shares of ITC have been falling continuously and are down more than 13% in the last two days. The stock has remained under pressure as investors react to a sharp change in cigarette taxation, which directly affects ITC’s largest business segment.
The sharp sell-off comes after the finance ministry revised the taxation structure for cigarettes, effective February 1, 2026.
Under the new framework, the base GST rate has been raised to 40% from 28%. A new basic excise duty per 1,000 sticks has been introduced, replacing the earlier fixed cess plus ad valorem structure. The National Calamity Contingent Duty, or NCCD, will remain unchanged.
This change has raised concerns about how higher taxes may affect cigarette prices, volumes and overall earnings. Cigarettes remain ITC’s biggest profit driver, even though the company has expanded into FMCG, hotels, agri-business and paperboards over the years.
Mayuresh Joshi, Head of Equity Research at William O'Neil India, said the excise duty hike will have an impact on ITC, but the situation may not be entirely negative.
He explained that demand elasticity exists in the cigarette business. This means that even if volumes fall, higher prices could help offset the drop in sales. According to him, this could be the best-case outcome for ITC in the near term.
Joshi also pointed out that ITC’s other businesses could provide some support. He said that agri-trading may benefit as MSP increases are expected over the next few months. This could help improve volumes in that segment. He added that discretionary spending may also return, which could aid the company’s FMCG business.
However, Joshi flagged concerns about ITC’s expansion into new business lines and products. He said that in the past, when ITC entered FMCG, a large part of its cash flows was diverted, while returns on capital stayed low for a long time before brands began to stabilise. He believes a similar risk exists now, which could affect cash flows and returns in the coming months. Due to these factors, he said the firm is maintaining a neutral view on the stock.
For investors, the key watchpoints remain tax-related price hikes, volume trends, and how well ITC’s non-cigarette businesses perform as the situation settles.
