Fall in ITC shares.

After the government's decision to impose new excise duty on tobacco and cigarette products, ITC shares are under tremendous pressure. In the beginning of January itself, ITC shares fell by about 5 percent and reached around ₹ 345, which is the lowest level of this share in 52 weeks. In the previous trading session also, a huge fall of about 10 percent was recorded in the stock. Due to this decline, the company suffered a loss of Rs 18,104.35 crore today.

What is the new decision of the government?

The Finance Ministry has announced that new excise duty will be implemented on cigarettes and other tobacco products from February 1. This tax will be in addition to the existing 40 percent GST. Now the tax per 1,000 cigarettes will range from ₹2,050 to ₹8,500, depending on the length of the cigarette. That means the longer the cigarette, the higher the tax. It is believed that this decision will have a direct impact on companies like ITC, because a major revenue of the company comes from cigarette business.

Why are ITC shares falling?

ITC's shares have fallen by about 25 percent in the last one year. It has seen a decline of 16 percent in the last six months, 14 percent in three months and almost 13 percent in just one month. There is a fear among investors that the increase in tax will increase the cost of cigarettes, which may affect both the company's margins and sales.

Brokerage firms believe that cigarettes of 75 to 85 mm length will be most impacted by the tax. This segment is considered an important part of ITC's total cigarette volume. To compensate for the increase in costs, the company may have to increase the price per cigarette by ₹ 2 to ₹ 3.

What does the brokerage opinion say?

Some brokerage houses have advised to adopt a cautious approach at present. He says that ITC's profits and volumes may remain under pressure in the short term. The company itself may have to bear the impact of increased excise duty initially, unless the prices are increased gradually.

However, it is also believed that the demand for cigarettes in India historically does not decrease much, that is, despite the increase in price, people do not stop purchasing completely.

Would it be right to buy ITC now?

Experts believe that the picture may be slightly different for long-term investors. ITC is not just a cigarette company, it also has strong business in sectors like FMCG, hotel, agri-business and paperboard. The company is getting continuous support from these non-cigarette businesses, which can balance the earnings in future. Experts believe that ITC has the advantage of ability to increase prices, cost control and operation on a large scale. Over time, the company can reduce the tax impact to a great extent through new strategies.