ITC Shares Witness 14% Decline in Two Days of New Year Trading. Increased Taxes and Excise Duty Prompt Investor Caution. Experts Recommend a Gradual Approach with Staggered Investments to Await Recovery.
ITC Share: ITC shares have begun the new year with a jolt for investors. The stock has plummeted nearly 14% in just two trading sessions, falling from a level of ₹402 to ₹345. This sharp decline has raised concerns among existing shareholders, while new investors are uncertain whether this represents a buying opportunity or if further caution is warranted.
ITC shares continued to face pressure on January 2nd, slipping nearly 4% in early trade. This has led to widespread questioning in the market regarding the appropriate course of action for the shares of India’s second-largest FMCG company.
What is the Root Cause of the Decline?
The primary reason for the approximately 10% decline in ITC shares on January 1st is attributed to a government decision. The government announced the imposition of new Additional Excise Duty and a new cess on cigarettes and tobacco products, effective February 1st.
This decision directly impacts ITC, as the company’s largest business is related to cigarettes. A significant portion of ITC’s total revenue is derived from this sector. As soon as the news of the tax increase broke, investors began selling shares, and the decline intensified.
What Impact Will the Tax Increase Have on Business?
Market experts believe that taxes on cigarettes and tobacco products are already quite high. Further increases could affect not only companies but also government revenue.
According to Independent Market Expert, Ambareesh Baliga, the increase in taxes could lead to a price increase of up to 30% in tobacco products. This creates two major risks. First, smuggling could increase. Second, volume could decline.
In both of these scenarios, government revenue could decrease, and company profits could come under pressure. This is why the market has reacted negatively to the decision.
Should ITC Shares Be Bought Now?
Following the sharp decline, the biggest question is whether this is a buying opportunity. Ambareesh Baliga believes that after such a significant drop in two days, ITC shares have now reached a good level.
According to him, it appears the share has currently formed a bottom. If market sentiment improves and concerns related to taxes ease, a recovery in ITC shares could be seen.
Baliga says that during the recovery, the share could move towards the ₹400 level again. However, he also clarified that investors should avoid taking large positions hastily.
Important Levels for ITC from a Technical Perspective
From a technical analysis perspective, ITC shares are also at a crucial juncture. According to Jigar S. Patel, Senior Research Manager at Anand Rathi Investment Services, the ₹350 level is considered the best support for this share.
If the share manages to maintain this level, a gradual recovery can be expected. On the upside, the ₹375 level is a major resistance.
Patel says that it would be premature to expect a b recovery until the share breaks above ₹375 decisively.
What Strategy Should Existing Investors Adopt?
For investors who already hold ITC shares, the time is to remain patient. Selling in panic could lock in losses.
If an investor has a long-term perspective, remaining invested in a b FMCG company like ITC could be an option. The company’s business is not limited to cigarettes. ITC also has a presence in hotels, packaged foods, agri-business, and other FMCG segments.
What Should New Investors Do?
Experts advise new investors to invest step-by-step rather than investing a large sum at once. That is, if you want to buy, enter in small quantities and wait for the situation to become clearer at subsequent levels.
It is essential to monitor decisions related to taxes and market trends. Before investing in any share, it is important to understand both the risk and the reward.
