ITC shares fall and then recover after government hikes cigarette taxes — do investors need to panic?

Budget 2023: ITC shares staged wild swings on Wednesday after Finance Minister Nirmala Sitharaman announced higher taxes on cigarettes in the Union Budget 2023-24. 

In her Budget speech, the finance minister announced a hike in the National Calamity Cintingent Duty (NCCD) on cigarettes — or taxes on cigarettes — by 16 per cent. This is the first increase in the NCCD on cigarettes since the Union Budget for the financial year 2020-21, in which the government had raised the duty by 2-4 times.

The NCCD on specified cigarettes was last revised three years ago. 

Here's a look at the changes in the taxes applicable to cigarettes across categories:

The stock made its way back into the green zone after an initial knee-jerk reaction to the news, finishing the day with a gain of Rs 9.2 or 2.6 per cent at Rs 361.5 apiece with high volumes on BSE. As many as 27.5 lakh ITC shares changed hands during the session, more than six times its daily average in the past two weeks, according to provisional exchange data. '

ITC shares gyrated in a range of Rs 36.7 during the session, touching Rs 365.7 and Rs 329 at the strongest and weakest levels of the day respectively.   

Other cigarette-related stocks, such as Godfrey Phillips, NTC Industries and VST Industries, however, succumbed to selling pressure.

Here's how Godfrey Phillips shares moved during the session: 

Analysts say higher taxes on tobacco and tobacco-related products such as cigarettes are likely to aid the government's revenue collections. 

What to expect in ITC shares after Budget 2023

In an interaction with Zee Business Managing Editor Anil Singhvi, Nirmal Bang Institutional Equities CEO Rahul Arora said that the government's move will only impact a section of ITC's portfolio.

"This is not a blanket hike on ITC products," Arora explained. 

Many analysts remain positive on cigarettes-to-hotels conglomerate ITC's growth prospects. 

"The government has finally made the move on the duty on cigarettes, as was expected many times in the past few years. The stock is expected to rally anyway... It (duty) is more for the government and less for ITC... The move will discourage smuggling of cigarettes," AK Prabhakar, Head of Research at IDBI Capital Markets, told Zeebiz.com.

Prabhakar remains positive on ITC shares and finds them attractive even at the Rs 300 level.  

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