ITC shares extended their decline on Friday afternoon, trading at ₹349.95, down 3.82% from the previous close of ₹363.85, as investors continued to digest the impact of an unprecedented government tax hike on cigarettes. The stock touched an intraday low of ₹345.25—marking its 52-week low—after opening at ₹360.00.

Heavy Trading Volumes Reflect Market Distress

Trading activity surged dramatically as investors rushed to reassess positions following the tax bombshell. The stock witnessed exceptional volumes with buyers marginally outnumbering sellers despite the sharp decline.

The stock has now declined 28.44% over the past year, with the recent two-day selloff following Thursday's 10% crash—the worst single-day drop since March 2020.

Unprecedented Tax Structure Creates Cascading Impact

The Finance Ministry's notification has fundamentally altered the cigarette taxation landscape, effective February 1, 2026. The new structure combines a 40% GST rate on MRP (versus 28% on net sales previously) with sharply higher basic excise duties, creating a cascading tax effect that particularly impacts longer cigarette segments.

JM Financial highlighted that the 65mm+ segments, which comprise 70% of ITC's volumes, face the most severe impact from the revised excise duty structure.

Brokerages Slash Targets Amid Margin Concerns

Leading brokerages have moved swiftly to downgrade their outlook as the full impact of the tax changes becomes clear. Motilal Oswal led the downgrades, cutting its rating from 'Buy' to 'Neutral' while slashing the target price to ₹400 from higher levels.

The brokerage noted that ITC will need price hikes of at least 25% across its cigarette portfolio just to maintain current net realizations, raising concerns about consumer acceptance and potential volume declines.

Volume Risks from Illicit Market Shift

Analysts warn that the sharp price increases necessitated by the tax hike could reverse years of progress against illicit cigarette brands. The tax stability of recent years had helped legal cigarette makers gain ground, with ITC delivering 5% volume CAGR over five years as the illicit market's share contracted.

However, the increased price arbitrage between legal and illegal brands poses significant risks. Concerns mount that consumers may downgrade to cheaper alternatives or illicit brands, potentially shifting volumes back to the illegal market and undermining ITC's market position.

The unprecedented nature of this tax increase has created substantial uncertainty about ITC's ability to navigate the challenging period ahead while maintaining its market leadership in the tobacco segment.

As the December quarter draws to a close, companies across various sectors have begun releasing their business updates ahead of the upcoming earnings season. The updates reveal a mixed performance landscape, with banking and manufacturing sectors showing particular strength while mining presents varied results.

Banking Sector Demonstrates Strong Growth Momentum

The banking sector has emerged as a standout performer in the December quarter updates. Karur Vysya Bank reported impressive growth metrics across key parameters:

The bank's management had previously indicated growth would sustain two percentage points above industry growth, and these results appear to validate that guidance. Karur Vysya Bank shares surged to daily highs following the announcement, with the stock showing remarkable 45% gains over the past 12 months.

Tamilnad Mercantile Bank also delivered strong performance, reporting 16% year-on-year growth in advances for the December quarter, exceeding the company's full-year guidance of 14% to 15%. The bank achieved 8% sequential growth in advances and 12.5% increase in deposits from the previous year, driven by a robust 15% surge in CASA deposits.

Manufacturing Sector Achieves Record Performance

APL Apollo Tubes set new benchmarks in the manufacturing space, delivering record-high sales volumes for the December quarter:

The company's consistent performance across both quarterly and nine-month periods demonstrates sustained demand in the steel tubes segment. APL Apollo shares responded positively, gaining 2.9% following the announcement and achieving a 52-week high, with the stock delivering 24% returns over the past 12 months.

Mining Sector Shows Mixed Results

The mining sector presented contrasting performances between the two major state-run companies. NMDC demonstrated strong operational metrics:

In contrast, Coal India faced operational challenges despite production growth. The company reported 4% growth in December production but experienced a 5% decline in total offtake for the month. On a year-to-date basis, Coal India's production reached 60% of the overall production target of 875 MT for financial year 2026, with offtake remaining lower on a year-on-year basis.

Financial Institutions Report Robust Lending Growth

State-run financial institutions demonstrated strong lending momentum. IREDA led the updates with significant growth across key metrics:

HUDCO also reported strong performance with loan sanctions of ₹46,167 crore for the December period and disbursements of ₹15,508 crore. The company achieved 45% growth in disbursements and 29% increase in sanctions compared to the previous year.

Market Reactions Reflect Performance Quality

Stock market reactions varied significantly based on the quality of business updates. Banking stocks led the positive response, with Karur Vysya Bank gaining 3% and Tamilnad Mercantile Bank recovering from daily lows to trade 0.7% higher at ₹517.4. APL Apollo Tubes also attracted investor interest with a 2.9% gain. However, some companies faced muted responses, with IREDA shares declining 0.4% despite strong operational metrics, and Coal India remaining largely unchanged at ₹400.6 amid mixed operational results.