LIC ITC Stake Faces Pressure As Cigarette Duty Hike Hits ITC Shares

Life Insurance Corporation of India faces renewed pressure as ITC holdings slide following a cigarette duty increase, with brokerages cutting ratings and market sentiment turning cautious on tobacco stocks in India.

Life Insurance Corporation of India has taken a sharp hit on its ITC holding, as the stock slide over two sessions wiped out about Rs 10,445 crore in value. The fall followed a steep increase in cigarette excise duty notified by the finance ministry.

LIC held a 15.86 per cent stake in ITC at the end of the September quarter, equal to nearly 199 crore equity shares. The revised duty structure on cigarettes, effective February 1, sparked a heavy sell-off across leading tobacco counters.

ITC shares and LIC investment under pressure after cigarette duty hike

Under the new excise slabs, cigarette duty will range from Rs 2,050 to Rs 8,500 for every 1,000 sticks, depending on length. The move hit sentiment in the entire sector, with traders rushing to cut exposure to ITC shares and peers.

The stock dropped to a three-year low of Rs 345.35 on Friday, before closing at Rs 350.10, down 3.8 per cent. ITC shares have already fallen about 28 per cent over the last year, and the fresh tax shock has added to pressure.

Brokerages flag challenges for ITC shares after cigarette duty shock

The sharp correction has led to several rating cuts. Motilal Oswal Financial Services called the tax increase “staggering”, and estimated overall cigarette taxation will climb about 50 per cent. The brokerage cut ITC from Buy to Neutral, with a reduced target of Rs 400.

Jefferies also turned cautious, moving its stance on ITC shares from Buy to Hold. “To offset the tax burden, ITC will need to implement substantial price increases. Assuming no mix change, ITC requires a 40 per cent price hike just to pass on the impact,” Jefferies said. The firm calculated that fully passing on the hike could lift the effective tax burden to nearly 70 per cent, taking tobacco tax from 55 per cent to 65 per cent of maximum retail price, and warned that “near-to-medium term upside now looks capped”.