ITC Share Price Plummets on Tax Hike, Faces Worst Month in 20 Years

Introduction: A Historic Plunge for ITC

ITC Ltd's stock has come under intense selling pressure in January 2026, plummeting over 18% and putting it on course for its most significant monthly decline in nearly two decades. The sharp fall, which has seen the stock hit a three-year low, was triggered by a government announcement of a substantial tax increase on cigarettes. This policy shift has spooked investors, leading to massive market value erosion and a flurry of downgrades from brokerage houses.

The Government's Tax Overhaul Explained

The primary catalyst for the stock's collapse is a double-whammy tax revision on tobacco products. On December 31, 2025, the government notified a new tax framework set to take effect from February 1, 2026. This includes the introduction of new excise levies on cigarettes, ranging from 20% to 55% depending on the product's length. Compounding this, the Goods and Services Tax (GST) rate on cigarettes was also raised from 28% to 40%. These new levies replace the existing GST compensation cess, marking an end to a period of relatively stable taxation for the industry.

Market Reaction and Stock Performance

The market's reaction was swift and severe. In the first few weeks of January, ITC's stock ended lower in 10 out of 11 trading sessions. The sell-off wiped out over ₹50,000 crore in market capitalization in a single day and more than ₹82,000 crore over four days. The stock price fell to its lowest level since April 2023, breaching its 52-week low and signaling strong bearish sentiment among traders and investors.

A Historical Perspective on the Decline

The current 18.3% drop in January 2026 is historically significant. An analysis of ITC's monthly performance data reveals that this could be the stock's worst month in nearly 20 years. The last comparable decline was an 18.9% monthly loss recorded in May 2006. Over the past two decades, the stock has only fallen more than 10% in a single month on 12 occasions, highlighting the severity of the current situation.

Technical Analysis: A Bearish Outlook

Technical charts paint a grim picture for ITC. The stock has decisively broken down below its key moving averages. Analysts have pointed to the confirmation of a 'Head-and-Shoulders' breakdown below the crucial ₹380 neckline, which previously acted as a medium-term support level. Sacchitanand Uttekar, Vice President at Tradebulls Securities, noted that the stock has been in a corrective structure since July 2023 and projects a final decline towards the ₹300 zone.

Analyst Projections and Price Targets

Market experts have revised their outlooks downwards. While some analysts believe the oversold conditions could lead to a short-term relief rally towards the ₹345–₹350 range, they caution that such a move would likely be corrective. Dhupesh Dhameja of SAMCO Securities holds a more bearish view, projecting a potential downside of nearly 19.5% to a target of ₹265, based on the implications of the Head-and-Shoulders pattern. A decisive break below the ₹320 level is seen as a trigger for further selling towards the ₹300 mark.

Derivatives Market Signals Caution

The Futures and Options (F&O) market data reinforces the bearish sentiment. The Put Call Ratio (PCR) for ITC stood at an extremely low 0.33, indicating that for every open Put option, there are more than three open Call positions, a sign of dominant call writing and bearish expectations. Furthermore, a sharp expansion in open interest to approximately 25.2 crore contracts alongside falling prices suggests the creation of fresh short positions rather than the closing of long ones.

Impact on Business and Investors

The tax hike is expected to force ITC to implement significant price increases, potentially over 15-20%, to protect its margins. Analysts warn this could hurt cigarette sales volumes as consumers may shift to cheaper, illicit alternatives. The development has also impacted major institutional investors. Life Insurance Corporation of India (LIC), a significant shareholder, reportedly incurred notional losses of over ₹10,400 crore in just two days following the stock's plunge.

Brokerage Downgrades and Outlook

Following the announcement, several brokerages downgraded ITC. Nuvama and Macquarie cut their ratings to 'Hold' and 'Neutral' respectively, slashing their target prices. They cited concerns over volume pressure and a darkened earnings outlook. However, some firms like Jefferies have maintained a 'Buy' rating, arguing that ITC's strong cash flows and dividend payouts could cushion the near-term impact for long-term investors.

Conclusion

ITC is currently navigating a period of significant uncertainty following a major regulatory shift that has ended years of stable taxation. The stock's sharp fall reflects deep concerns about future profitability and volume growth in its core cigarette business. While technical indicators suggest a temporary bounce is possible, the broader trend remains weak. Investors will be closely watching the company's pricing strategy and the upcoming F&O contract expiry on January 27 for further cues on the stock's direction.