The new year has brought significant losses for investors in ITC Limited. The diversified conglomerate's stock price has plunged dramatically, wiping out a massive amount of shareholder wealth following a major government policy announcement.
Steep Tax Hike Triggers Market Sell-Off
The trigger for this sharp decline was a notification from the finance ministry on Wednesday night. The government announced a substantial increase in the excise duty on cigarettes, setting it between ₹2,050 and ₹8,500 per 1,000 sticks, depending on their length. This new levy is effective from February 1, 2025, and will be in addition to the standard 40% Goods and Services Tax (GST) rate.
Market reaction was swift and severe. ITC's stock recorded its worst single-day fall in nearly six years, crashing by 10% on Thursday, January 2. The sell-off continued the next day, with the blue-chip stock falling another 5% to hit a fresh 52-week low of ₹345.25 on the National Stock Exchange (NSE). Over just two trading sessions, the stock tumbled approximately 14%, reaching its lowest level in three years.
Wealth Evaporation and Major Losers
The cumulative impact of this price collapse has been staggering. The total market value erased for ITC shareholders stands at nearly ₹72,300 crore. A significant portion of this loss has been borne by the Life Insurance Corporation of India (LIC), the country's largest domestic institutional investor.
As of the September quarter, LIC held a substantial 15.86% stake in ITC, amounting to 1,98,58,07,233 shares. The two-day crash has resulted in a notional loss of over ₹11,460 crore for the state-owned insurance behemoth.
Brokerages Downgrade and Analyst Outlook
In response to the tax hike, at least eleven prominent brokerages, including global giants like Goldman Sachs, JPMorgan Chase, and Morgan Stanley, have downgraded their ratings on ITC stock.
Domestic brokerage Nuvama Institutional Equities has cut its earnings forecast, reducing the estimated EBITDA by 7% each for FY27 and FY28. It downgraded the stock from 'BUY' to 'HOLD', setting a revised target price of ₹415. The firm's analysis suggests that historically, sharp tax-led price increases lead to a 3–9% decline in cigarette sales volumes.
Similarly, Motilal Oswal Financial Services (MOSL) has also downgraded ITC from 'BUY' to 'Neutral'. It revised its sum-of-the-parts (SoTP) based target price down to ₹400. The brokerage noted that earnings pressure on the cigarettes business removes near-term positive catalysts and valuation comfort.
Analysts express concern that cigarette manufacturers, including ITC, will have to raise prices significantly—potentially by as much as 40%—to pass on the full impact of the higher taxes to consumers. This could dampen demand and push some consumers towards illicit or smuggled cigarettes. However, with the new duty effective from February 1, a surge in January production and sales is expected, which may cushion the financial impact for the fourth quarter of FY26.
Experts believe a rollback of the tax hike looks difficult and would require time, as the industry would need to engage with the government backed by supporting data. For now, ITC shareholders face an uncertain near future as the market digests the implications of this significant regulatory change.
