ITC Shares Tumble to 6-year Low as Centre Hikes Cigarette Excise Duty

Shares of ITC Ltd slumped sharply on the first trading day of 2026. This came after the Centre unveiled a fresh excise duty regime on cigarettes, dragging tobacco heavyweights into a broad sell-off and wiping billions off market value.

ITC, India’s largest cigarette maker, ended Thursday’s session down 9.7% at ₹363.90 on the BSE. It marked its steepest single-day fall since March 2020.

New Tax Drives Selling Pressure

The fall is attributed to a revised excise duty on cigarettes. The Finance Ministry late Wednesday notified a revised excise duty regime on cigarettes and related products, effective February 1, 2026. Under the changes, cigarettes will attract a specific excise duty ranging from ₹2050 to ₹8500 per 1000 sticks, depending on cigarette length. The latest levy is in addition to a 40% GST on cigarettes.

Market participants said the combined impact of the higher excise levy and the 40% GST could significantly increase the overall tax burden on cigarettes, where costs are already high.

Broader Sector Weaknesses

Along with ITC shares, other tobacco stocks also suffered. Shares of Godfrey Phillips India, the Marlboro distributor, plunged sharply. It fell 17% to ₹2280.

Sentiment in the broader FMCG pack was dented too. The Nifty FMCG index slid as tobacco names skidded. Traders noted that the policy shift could narrow margins and weigh on volume growth for companies heavily exposed to cigarettes. These companies have long been seen as high-margin contributors to earnings.

Valuation and Downgrades

Following the drop, some brokerage houses moved quickly to adjust forecasts. One flagged that consensus estimates for cigarette volumes and EBITDA could be trimmed, prompting a downgrade of ITC’s tobacco valuation multiple. The broker cut its PE valuation for the tobacco arm to 17x from 23x, citing near-term earnings pressure.

The hit in ITC’s share prices also took a toll on its market capitalisation. Estimates suggest losses exceeded ₹50,000 crores during the sell-off.

Investor Reaction and Outlook

Market watchers described Thursday’s trading as a classic fear trade, with stop-loss triggers and algorithmic selling amplifying the downturn. Some fund managers said they were awaiting clearer guidance from the company on pricing strategy and volume outlook before committing fresh capital.

Despite the negative near-term reaction, a few analysts retained a longer-term view on ITC. They pointed to its diversified portfolio across FMCG, hotels and other segments that could cushion the impact of tobacco headwinds. But most agreed that regulatory risk remains a key watchpoint for the stock.

The market is currently pricing in a time of adjustment as tobacco companies get used to the new tax system. Because of the New Year holidays, trading volumes are low, so volatility is likely to persist into early 2026 as investors reassess earnings forecasts in light of the policy changes.

Sources

New Indian Express
MSN
Economic Times