Tobacco Tax Hike Hits ITC Hard

Tens of thousands of crores in market value were lost in just two trading sessions due to a dramatic sell-off in ITC shares caused by a sudden increase in tobacco taxation.

New Tobacco Tax and Policy Move

In addition to a 40% GST burden on tobacco goods, the finance ministry has announced a significant hike in excise duty on cigarettes, which would take effect on February 1, 2026, and range roughly from ₹2,050 to ₹8,500 per 1,000 sticks, depending on length.

Analysts view this new structure as a "tax shock" for the legal cigarette sector since it replaces previous cess-linked taxes and greatly increases the effective tax incidence on premium and king.

Immediate Impact on ITC Share Price

Following the announcement, ITC's shares fell around 10% in a single session and 14% over the course of two days, losing nearly ₹63,000–70,000 crore in market capitalisation and reaching a multi-year low in the ₹345–350 region.

Large block deals accompanied the heavy selling, with several crore shares exchanging hands as institutional and short-term investors scrambled to reduce exposure in the face of uncertain future profitability.

Earnings Pressure and Brokerage Downgrade

According to brokerages, the hefty duty increase results in a roughly 20–30% increase in the total tax burden on several cigarette SKUs, compelling ITC to contemplate price increases of at least 15–25% and possibly as much as 40% to preserve per-stick realisations.

At least a dozen significant companies, including Goldman Sachs, JPMorgan, Morgan Stanley, and domestic brokers, have downgraded the stock or lowered target prices due to weaker earnings growth visibility. Higher prices are anticipated to impact volumes in the near future.

Wider Fallout and Sector Concerns

One of the largest investors in ITC, the Life Insurance Corporation of India, has seen its holding value drop by more than ₹10,000 crore in just two sessions, demonstrating how significant institutional investors have also been impacted by the tax shock.

Analysts and trade associations caution that such sharp increases run the risk of driving customers toward less expensive, illicit, or unorganised tobacco products, which could impact small merchants and growers while reducing volumes for organised companies like ITC in the short to medium term.