IT Share Falls: ITC’s stock, which has been considered trustworthy among Indian retail investors for years, has suffered a major blow due to the increase in tax on cigarettes. After the announcement of the new tax structure, there has been a decline of about 15 percent in the valuation of the company. Due to this, brokerage firm Nuvama Equities has downgraded ITC shares from ‘Buy’ to ‘Hold’ rating and reduced the 12-month target price from Rs 534 to Rs 415.

Why are IT stocks falling?

This fall in ITC shares has come at a time when the Union Finance Ministry has announced to increase the tax on cigarettes, which will be applicable from February 1, 2026. Under the new tax structure, the government has increased the base GST rate from 28 percent to 40 percent. Along with this, instead of the earlier applicable fixed cess and ad-valorem (value based) tax, a new basic excise duty has been implemented per 1,000 cigarette sticks. However, National Calamity Contingent Duty (NCCD) has been retained as before.

Brokerage firm JM Financial believes that the revised excise duty structure is much higher than the existing system and is contrary to the expectations of a tax-neutral transition under GST. According to JM Financial’s estimates, the basic excise duty per cigarette stick and the total tax burden for ITC on a mixed basis may increase by 40 to 50 percent. To balance the impact of this additional tax, the company may have to increase the MRP of cigarettes by 20 to 40 percent or even more, with an average price increase of about 35 percent possible.

What is the opinion of the brokerage firm?

The brokerage also says that the impact on the sub-65 mm DSFT category, which accounts for about 30 per cent of the total ITC volume, will be relatively limited. The RSFT segment, which represents about 50 per cent of the volume, as well as the longs and KSFT categories have seen a sharp increase in duty rates. Due to this, there is a possibility of increase in pressure on sales and margins in these segments.

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