MUMBAI – ITC Ltd shares came under heavy selling on Thursday, dropping as much as 9.8% to around ₹363 on the BSE and NSE, near a multi-year low. It was one of the stock’s sharpest single-day falls in years, sparked by a government notification that brings in a much higher central excise duty on cigarettes from 1 February 2026.
Trade activity spiked, with more than 28 crore shares changing hands. Many investors rushed to cut exposure, worried about tighter margins and weaker demand in ITC’s biggest profit line.
Late Wednesday, the Finance Ministry notified a renewed central excise duty on cigarettes and other tobacco products. It is the first major reset since GST began in 2017. The new duty sits between ₹2,050 and ₹8,500 per 1,000 sticks, based on cigarette length and type. It comes on top of the 28% GST and other charges, taking the overall tax burden to about 40% or more for several segments.
This replaces the earlier basic excise duty of only ₹5 to ₹10 per 1,000 sticks and folds in components such as the National Calamity Contingent Duty (NCCD). Analysts called it a clear break from the post-GST approach. The move also lines up with World Health Organization guidance that encourages higher tobacco taxes to reduce consumption.
Finance Minister Nirmala Sitharaman has backed similar steps in Parliament before, citing public health and the need to curb tobacco use, especially among younger people. The government has also pointed to the cost of tobacco-linked illness on public healthcare. The revised excise structure is expected to raise extra revenue while discouraging smoking among India’s estimated 100 million smokers.
Cigarettes still drive the ITC share price, and that’s where the risk sits
ITC has expanded into FMCG foods, personal care, hotels, paperboards, and agri-business. Even so, cigarettes remain its profit engine. In recent quarters, the segment made up roughly 42 to 48% of total revenue and about 78% of segment profit before interest and tax (PBIT).
In the September 2025 quarter, cigarette revenue rose 6.7% year on year to ₹8,722 crore, with volumes up 6%. The business still runs high segment margins, often above 60 to 70%, helped by pricing strength, premium products, and a strong hold over the organised market. ITC controls over 80% share through brands such as Gold Flake, Classic, Wills Navy Cut, and Insignia.
The new duty structure threatens that advantage. Jefferies estimates ITC may need to raise cigarette prices by at least 15% to cover the higher tax, with bigger increases possible for longer or premium sticks. Cigarettes longer than 75 mm, around 16% of volumes, could see per-stick price rises of ₹2 to ₹3 or more.
Earlier tax increases have often pushed buyers towards cheaper products or illicit options, which can hurt legal volumes. The Tobacco Institute of India warned the levy could create serious strain for farmers, retailers, and the wider supply chain, while also encouraging illegal trade that avoids taxes.
What the market did: heavy selling, plus a big block trade
Benchmarks ended mixed on the first trading day of 2026, but ITC was the biggest drag on the Nifty 50. The FMCG index fell by over 1.6%. The pressure spread across the space, with Godfrey Phillips India, which distributes Marlboro, falling as much as 19%.
Early in the session, a large block deal added to the noise. More than 4 crore shares (about 0.3% equity) traded at roughly ₹400 each, valuing the deal near ₹1,614 crore. Traders speculated about whether foreign investors or large institutions were selling after the tax announcement.
By the close, ITC was around ₹363 to ₹364, down about 9.7% from Wednesday’s ₹403. The fall erased close to ₹45,000 crore in market value in one session. The stock dropped to levels last seen in early 2023 and extended its 2025 fall to roughly 12%, marking its first negative year in a while.
What analysts are saying: pressure now, strength later
Brokerages stayed careful in their notes. They expect near-term stress from slower volumes and a possible margin squeeze. At the same time, many still point to ITC’s ability to raise prices over time, its broader mix of businesses (non-cigarette FMCG is now over 25% of sales), and its strong balance sheet and dividends.
One ICICI Securities report said cigarettes should remain ITC’s top profit contributor for the near future, helped by the company’s ability to pass on costs in stages. Others flagged the risk that a bigger illicit market could pull more buyers away from legal products.
ITC has not yet shared an official view on the impact. In past cycles, it has responded with measured price increases and new premium launches to protect earnings.
For long-term holders, ITC is often seen as a steady, dividend-paying stock, with yields around 3.5 to 4% and strong cash flows. Its growth plans in packaged foods (Aashirvaad, Sunfeast) and hotels also support the wider story. Still, tobacco remains a policy risk, and that can limit upside and add sudden swings.
The move also signals the government’s focus on health outcomes and revenue. Over time, it could also influence farm choices, with some tobacco-growing regions shifting towards crops such as pulses or oilseeds.
Markets now look to ITC’s Q3 results, expected in late January, for clues on pricing plans and volume trends ahead of the February duty start. The sharp fall is a reminder that even large, well-known stocks can take a hit when policy changes land without warning.
