Should You Buy ITC Stock Now?

Few companies in India evoke as much debate as ITC Limited. For decades, it has been regarded as a cash-rich, dependable heavyweight; defined by steady dividends, powerful brands, and a strong balance sheet. As 2025 turned into early 2026, however, ITC found itself back in the spotlight, not due to operational weakness, but because policy, perception, and future expectations converged.

This is ITC’s current reality: financially stable, but operating under rising regulatory uncertainty.

Policy Shock and Market Reaction

Just as business conditions appeared steady, the narrative shifted. Towards the end of 2025, the Government of India announced a sharp increase in excise duty on cigarettes, effective in February 2026. The move was aimed at aligning India’s tobacco taxation framework with World Health Organisation (WHO) guidelines, which recommend a tax incidence of at least 75% of the retail price to discourage consumption.

Price impact per stick	₹2.05 - ₹5.4
Cost absorbed	20%- 30% (based on analyst expectations)
Impact on margins	₹0.4 - ₹1
Potential impact on net profit	~ ₹3200- ₹8000 (ITC sells ~80 Billion cigarette sticks)

Because cigarettes account for 44.42% of ITC’s revenues and nearly 78% of total PBIT, the announcement materially altered market expectations around pricing power, volumes, and earnings visibility, even though there was no immediate deterioration in operating performance.

Markets reacted swiftly. By January 2026, ITC’s share price had fallen to ₹363.85, nearly 22% below its 52-week high of ₹472. Broker downgrades followed, trading volumes spiked, and sentiment turned cautious. The concern was not business collapse, but profit compression; higher prices, possible volume moderation, and pressure on the segment that funds ITC’s diversification.

What Still Works for ITC

Despite the sell-off, ITC’s core fundamentals remain intact. Cigarettes continue to be the company’s profit engine, contributing 44.42% of revenues and ~78% of PBIT in FY25, with FY25 cigarette revenues growing 6.6% YoY.

Outside tobacco, FMCG (non-cigarette) contributes 29.91% of revenues, agri-business 16.42%, and the balance sheet remains virtually debt-free, with FY25 revenues of ₹74,236.07 crore, a dividend yield of 4.18%, and ROE of 27.3%. These numbers reinforce that ITC’s financial strength has not weakened; only its near-term risk perception has changed.

ITC’s Position on the Tax Increase

ITC has expressed concern that higher taxes on the organised cigarette industry may deepen structural imbalances in India’s tobacco market. While India is the world’s second largest consumer of tobacco, legal cigarettes account for only about 8% of total tobacco consumption, compared with a global average of nearly 90%.

According to the company, decades of punitive and discriminatory taxation have pushed consumers away from duty-paid cigarettes toward lightly taxed or tax-evaded alternatives, including illicit cigarettes, bidis, chewing tobacco, gutkha, zarda, and snuff. As a result, the share of legal cigarettes has declined from 21% in 1981–82 to around 8% today, even as overall tobacco consumption has increased.

Despite representing less than one-tenth of total tobacco consumption, duty-paid cigarettes contribute over four-fifths of total tobacco tax revenues. ITC has also highlighted that sustained tax increases have accelerated illicit trade, with India now estimated to be the fourth-largest illicit cigarette market globally, according to Euromonitor. The company argues that further tax hikes risk shifting consumption rather than reducing it, while weakening revenue collections and regulatory oversight.

Where ITC Stands Today

This is where the tension lies. The business remains strong, but confidence is fragile. Cigarettes continue to generate cash, non-tobacco businesses are scaling steadily, and the balance sheet remains one of the strongest in corporate India. Yet, the stock price reflects policy risk more than operational weakness.

The Bottom Line

ITC in 2025-'26 is a company in transition, not distress. It stands between a highly profitable legacy business and a slower, more diversified future. Whether markets reward patience or continue to penalise uncertainty will depend less on quarterly performance and more on how effectively ITC navigates regulation while proving that its non-tobacco engines can eventually carry the same weight as cigarettes.

Quiet strength, loud uncertainty - that is ITC today.

Disclosure: The views expressed in this analysis represent the author’s personal opinion and do not constitute a formal recommendation. Stock market investments are subject to high volatility and market risks. Past performance of a stock is not a reliable indicator of future results. No part of this analysis should be considered as a personal recommendation to any specific investor or class of investors. It is strongly recommended that you seek advice from a licensed financial consultant or investment advisor who can assess your risk profile and financial objectives before you act on any information provided herein.

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