ITC Shares Plummet to Near Two-Year Low Amid Tax Hike and Block Deal
ITC Limited's stock experienced a significant downturn, reaching its lowest point in nearly two years on Thursday, January 1. The sharp decline was triggered by the Indian government's notification of an increased excise duty on cigarettes and other tobacco products, set to take effect from February 1, 2026. This news, combined with a large block trade in the company's shares, has unsettled investors.
The Core Issue: New Tax Regulations
The Finance Ministry has officially notified the imposition of a 40% Goods and Services Tax (GST) on tobacco, cigarettes, and bidis, commencing February 1, 2026. This new tax structure involves a 28% GST rate alongside the subsuming of existing Excise duties and the National Calamity Contingent Duty (NCCD). The critical factor for the market is understanding the total tax incidence following this implementation and its potential impact on cigarette prices and demand.
Financial Implications and Revenue Contribution
The cigarette business is a cornerstone of ITC's financial performance. For the September quarter, this segment contributed a substantial 48% to the company's overall topline. Revenue from cigarettes saw a 6.7% year-on-year growth, reaching ₹8,722 crore, with volumes growing by 6%, aligning with market expectations. The new tax structure poses a direct threat to this revenue stream and the profitability of ITC's core business.
Market Reaction and Performance
On Thursday, ITC shares were trading approximately 4.1% lower at ₹386.3. This marks the stock's first year of negative returns since 2020, having declined 12% in 2025. The current trading levels are reminiscent of March 2024, indicating a significant pullback. This single-day drop represents the most substantial decrease ITC has witnessed in over eight months, highlighting the severity of the market's reaction to the news.
The Block Deal Impact
Earlier on Thursday, a substantial block deal occurred involving ITC shares. Over 4 crore shares, representing about 0.3% of the company's total outstanding equity, changed hands. The transaction price was reported at an average of ₹400 per share, cumulating to a total transaction value of ₹1,614.5 crore. Such large trades can influence short-term price movements and indicate significant shifts in institutional investor sentiment.
Future Outlook
Analysts are closely watching how ITC will navigate the increased tax burden. The company may attempt to pass on some of the costs to consumers, which could impact sales volumes. Alternatively, absorbing the cost could pressure profit margins. The significant drop in share price suggests that the market is pricing in a challenging period ahead for ITC's cigarette division and potentially its overall financial outlook.
Impact
This development is expected to have a significant negative impact on ITC Limited's stock price and profitability in the short to medium term. Investors holding ITC shares may face losses, and the company's future earnings forecasts could be revised downwards. The government, however, might see an increase in tax revenue from tobacco products. Impact rating: 9/10.
Difficult Terms Explained
- GST (Goods and Services Tax): A comprehensive indirect tax levied on the supply of goods and services in India, replacing multiple indirect taxes.
- Excise Duty: A tax levied on goods manufactured or produced within a country.
- NCCD (National Calamity Contingent Duty): An additional duty imposed on specific goods, including tobacco products, to fund calamity relief.
- Block Deal: A large transaction involving a significant number of shares traded between two parties at a negotiated price, often outside the regular stock market trading hours or as a single large order.