ITC shares continued their downward spiral, falling 1% to ₹334.85 on Tuesday, January 13, marking a fresh 52-week low. The FMCG giant has been under intense selling pressure since the government announced significant tax hikes on cigarettes, which will take effect from February 1, 2026.

Government Announces Major Tax Overhaul

In December 2025, the Indian government unveiled a comprehensive revision to tobacco taxation through amendments to the Central Excise Act. The new framework introduces substantial excise duties on cigarettes, creating additional financial burden for manufacturers.

The government also implemented the Health and National Security Cess Act, imposing a cess on pan masala manufacturing capacity. However, the overall tax burden on pan masala remains unchanged at 88%, including the 40% GST. This revised structure replaces the previous regime of 28% GST plus compensation cess on tobacco products.

Brokerage Downgrades Reflect Industry Concerns

The magnitude of the tax hike has prompted widespread downgrades from leading brokerages, with analysts expressing concerns about volume pressure and earnings impact.

Nuvama Cuts Rating to Hold

Nuvama downgraded ITC from "buy" to "hold" and revised its price target to ₹415-₹534 per share. The brokerage noted that while a sharp tax hike was expected, the actual magnitude appears higher than anticipated, likely prompting consensus downgrades to cigarette volume and EBITDA estimates.

Motilal Oswal Turns Neutral

Motilal Oswal downgraded the stock from "buy" to "neutral" with a reduced target price of ₹400. The firm highlighted that stable tax regimes over the past five years helped curtail illicit cigarette markets, enabling ITC's cigarette volumes to grow at a 5% CAGR. The new tax structure could potentially shift volumes from legal to illicit brands and trigger downtrading within legal brands.

Axis Securities Adopts Cautious Stance

Axis Securities revised its rating to "Hold" with a target price of ₹380. Despite cutting margin estimates for FY26/FY27 due to near-term headwinds, the firm maintains a positive outlook on medium to long-term growth prospects.

Stock Performance Under Pressure

ITC's share price performance reflects the market's concerns about the regulatory changes and their potential impact on the company's core cigarette business.

The stock's decline represents a significant erosion in market value, with investors clearly factoring in the potential negative impact of the new tax regime on ITC's cigarette business, which remains a key revenue and profit contributor for the company.

Market Outlook

Analysts expect the earnings pressure on cigarettes to overshadow near-term catalysts such as soft tobacco prices and recovery in FMCG and paper segments. The new tax framework creates uncertainty around volume sustainability and margin protection, leading to a more cautious investment approach among institutional investors and analysts.

ITC Limited recorded a notable block trade on the National Stock Exchange (NSE), highlighting significant institutional activity in the consumer goods major's stock.

Block Trade Details

The transaction involved substantial volume and value, demonstrating active participation from large investors in ITC's shares.

Market Implications

Block trades represent large-volume transactions typically executed by institutional investors, mutual funds, or other significant market participants. Such transactions are conducted outside the regular market to avoid impacting the stock's market price during execution.

The execution price of ₹334.50 per share for this block trade provides insight into the valuation at which large investors are willing to transact in ITC shares. The substantial volume of over 840,000 shares indicates meaningful institutional interest in the stock.

Transaction Significance

This block trade represents a significant monetary value of ₹28.12 crores, reflecting the scale of institutional participation in ITC's equity. Such transactions often occur when large investors are either building positions or reducing their holdings in a stock, making them important indicators of institutional sentiment toward the company.