Why Did ITC Stock Slide Sharply After Hitting Lower Circuit, Here's How Tax Hikes & Rating Downgrades Worrying Investors?

Mumbai: ITC Limited shares saw sharp selling pressure after the government announced a fresh increase in excise duty on cigarettes. On January 2, the stock fell more than 5 percent and touched a new 52-week low of Rs 345.25. This marked the second straight trading session of heavy losses for the stock, following a lower circuit hit a day earlier.

The fall was quick and steep. During early trading, ITC shares broke below the previous day’s low and were trading nearly 4 percent down. The decline affected investor confidence in the diversified group, which has businesses ranging from cigarettes and FMCG to hotels and agribusiness.

Why Is ITC Stock Falling?

The main reason behind the fall is the approval of the Central Excise (Amendment) Bill, 2025, by Parliament in December. This law clears the way for a sharp increase in excise duty on cigarettes and other tobacco products. The new rule replaces a temporary levy that was earlier imposed on cigarettes.

According to the finance ministry’s notification, from February 1, cigarettes will attract excise duty in addition to 40 percent GST. Based on cigarette length, the excise duty will range between Rs 2,050 and Rs 8,500 per 1,000 sticks. At present, total tax on cigarettes in India is about 53 percent of the retail price, which is still lower than the World Health Organization’s suggested level of 75 percent.

Impact on Costs and Prices

ICICI Securities estimates that the total cost of cigarettes measuring 75–85 mm could rise by 22–28 percent. Analysts say cigarettes longer than 75 mm make up around 16 percent of ITC’s total sales volume. Prices of these cigarettes may increase by Rs 2–3 per stick. This could push customers toward cheaper alternatives or even illegal cigarettes.

Brokerage Views Turn Cautious

JPMorgan downgraded ITC to 'Neutral' and cut its target price to Rs 375 from Rs 475, warning that higher taxes could hurt volumes and earnings growth for the next 6-9 months. Nuvama retained a 'Hold' rating but reduced EBITDA estimates for future years. UBS maintained a 'Buy' rating but lowered its target, citing weaker earnings growth.

Recent Stock Performance

ITC shares have fallen over 13 percent in the last five days and more than 15 percent in the past six months. Experts believe continued regulatory pressure on tobacco may keep the stock volatile in the near term.

Disclaimer: This content is for informational purposes only and does not constitute investment advice. Stock market investments are subject to market risks. Readers should consult a qualified financial advisor before making investment decisions.