ITC Stock Plummets 10% to 21-Month Low on 40% GST Hike

ITC Stock Faces Steep Decline on New Tax Announcement

Shares of ITC Limited, a diversified conglomerate, plunged nearly 10% on Thursday, January 1, 2026, hitting a 21-month low. The sharp decline was triggered by a Finance Ministry notification announcing a new 40% Goods and Services Tax (GST) on cigarettes and other tobacco products, set to take effect from February 1, 2026. This development, coupled with a significant block deal, has created substantial uncertainty among investors regarding the company's most profitable business segment.

The New Tax Structure Explained

The government's decision introduces a significant shift in the taxation of tobacco products. The new 40% GST will subsume existing levies, including the Excise Duty and the National Calamity Contingent Duty (NCCD). This move aims to streamline the tax regime following the end of the GST compensation cess period. While the government's intention might be to maintain a similar tax outgo, the market has reacted to the potential for price hikes and a subsequent impact on consumer demand. The final impact on ITC will depend on the fine print of the new tax laws and how the company adjusts its pricing strategy.

Immediate Market Reaction and Trading Volume

The market's response to the news was swift and severe. ITC's stock opened the session at ₹402.70 but quickly fell under intense selling pressure, touching a 52-week low of ₹362.70. The trading volume surged dramatically, with over 219 million shares changing hands, significantly higher than its 20-day average volume of around 8.3 million shares. A large block deal involving over 4 crore shares, valued at approximately ₹1,614.5 crore, was executed at an average price of ₹400 per share, indicating significant institutional activity. The stock closed the day around ₹368, marking one of its most substantial single-day drops in recent history.

Financial Implications for ITC

The cigarette business is the financial backbone of ITC, contributing approximately 48% to the company's total revenue in the September 2025 quarter. During that period, the segment reported a revenue of ₹8,722 crore, a 6.7% year-on-year increase, with volume growth at a healthy 6%. The new tax structure poses a direct risk to this crucial revenue stream. The company faces a difficult choice: absorb the higher tax burden, which would compress margins, or pass it on to consumers, which could lead to a decline in sales volumes.

| Key Stock Data (Jan 1, 2026) | | :--- | :--- | | Open | ₹402.70 | | High | ₹402.70 | | Low | ₹362.70 | | Previous Close | ₹403.00 | | 52-Week High | ₹491.00 | | 52-Week Low | ₹362.70 | | Market Cap (Cr.) | ₹4,59,562 | | Volume Traded | 219,742,453 |

Impact on the Broader Tobacco Sector

The negative sentiment was not confined to ITC. Other players in the tobacco industry also faced a sharp sell-off. Shares of Godfrey Phillips India tumbled nearly 20% to an intraday low of ₹2,230.15. This sector-wide decline underscores investor concerns about the profitability and growth prospects of tobacco companies under the new, higher tax regime. The development highlights the regulatory risks inherent in the 'sin goods' category.

Technical Indicators Signal Bearish Momentum

From a technical standpoint, the outlook for ITC has turned bearish. The stock is now trading below its 5-day, 20-day, 50-day, 100-day, and 200-day moving averages, a clear indicator of a strong downtrend. The breach of its previous 52-week low suggests that further downside is possible as stop-loss orders may be triggered. The sharp increase in volume accompanying the price drop confirms the strength of the selling pressure.

Analyst Commentary and Long-Term Outlook

Despite the immediate negative reaction, some analysts maintain a long-term bullish view on ITC. They point to the company's strong fundamentals, including a debt-free balance sheet, consistent dividend payouts, and the steady growth of its non-cigarette FMCG business. The recent demerger of its hotels business is also seen as a value-unlocking move. For instance, Prabhudas Lilladher has a 'buy' rating with a target price of ₹530, while Sharekhan recommends a 'buy' with a target of ₹505. These experts suggest that the current price drop could present a buying opportunity for long-term investors who can withstand the near-term volatility.

Conclusion: Navigating a Challenging Period

ITC is facing a significant headwind with the impending 40% GST on its core business. The market has priced in a challenging period of adjustment, reflected in the stock's sharp fall to a 21-month low. While the company's diversified business model and strong fundamentals provide a cushion, its performance in the coming quarters will be closely watched. Investors will be looking for clarity on the final tax incidence and the company's strategy to navigate this regulatory change, which officially comes into effect on February 1, 2026.