Cigarette prices have increased across categories after the government introduced a revised taxation framework. Retail prices have reportedly gone up by Rs 22–25 per pack of 10 sticks, reflecting the higher tax burden. Under the new regime, excise duties have been set in the range of Rs 2,050 to Rs 8,500 per 1,000 cigarette sticks, along with a 40% GST rate, effective February 1, 2026. This has significantly raised the overall tax incidence on cigarettes, sparking concerns over demand slowdown, margin pressure, and a possible rise in illicit trade.
Also Read | ITC investors lose Rs 1 lakh crore after tax shock. Is there more pain in Budget 2026?
Market participants believe the recent correction in ITC’s share price is driven more by this abrupt policy shift than by any deterioration in the company’s underlying business fundamentals. Vincent K A of Geojit Investments noted that the decline reflects the steep hike in cigarette excise duty. He added that ITC is likely to respond with price hikes, as it has done historically, to protect margins, though higher prices could weigh on volumes in the near term.Investor concerns centre on the risk of demand destruction in India’s price-sensitive market. Abhishek Jain, Head of Research at Arihant Capital Markets, described the situation as a “double whammy” for ITC, highlighting that the existing 28% GST combined with higher excise duties effectively pushes cigarettes closer to a 40% tax regime.
According to Jain, elevated taxation could also fuel the growth of the illicit tobacco market, which would negatively impact legal volumes and profitability. Similar concerns have been raised by the Tobacco Institute of India, which has opposed the tax hike, warning of potential losses for farmers and other stakeholders in the value chain, along with an increase in illegal cigarette trade.
On the earnings front, ITC recently reported its results for the quarter ended December 31, 2025. Standalone net profit declined 6.1% year-on-year to Rs 5,088.83 crore, impacted by a one-time cost of Rs 273.83 crore related to the new labour code. Revenue from operations grew 5.8% YoY to Rs 19,359.46 crore, while EBITDA rose 7.6% YoY to Rs 6,271 crore. The company also announced an interim dividend of Rs 6.5 per share, with February 4, 2026, set as the record date.
Post results, brokerages remained cautious. Morgan Stanley maintained an Equal Weight rating with a target price of Rs 366, citing better-than-expected operating performance but no immediate catalyst for a rerating. Motilal Oswal reiterated its Neutral stance with a target of Rs 365, implying around 15% upside, while describing the quarter as a “healthy performance but a non-event after the tax hike.”
ITC shares ended 3.95% lower at Rs 309.45 on the NSE on Sunday.
From a technical perspective, ITC appears deeply oversold. The 14-day RSI stands at 18.4, with readings below 20 typically considered strongly oversold, indicating the possibility of a short-term rebound. However, the broader trend remains weak, as the stock is trading below all 8 key simple moving averages, highlighting persistent bearish momentum.
Sensex, Nifty today: Catch all the LIVE stock market action here
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times.)
