ITC Stock Down 36%: Tax Shock or Buying Opportunity?

ITC Limited has corrected nearly 36% from its previous major peak, and the slide traces directly to India's latest cigarette taxation regime. Santhosh Kumar B, the TradingView analyst who published the analysis, frames the central question plainly: is this "the beginning of a prolonged structural decline," or an opportunity created by temporary market pessimism?

The historical record favors patience. ITC has absorbed multiple rounds of cigarette taxation over the years. Each time, the company passed a meaningful portion of the added burden to consumers through calibrated price increases. The 2023 NCCD episode is the clearest case. Despite an initial sell-off, ITC recovered sharply once investors assessed the actual impact on the business.

Kumar argues 2026 presents a much bigger challenge.

How much pricing power does ITC actually have?

The new tax regime has significantly increased the cost burden on cigarette manufacturers. ITC has responded with successive price revisions. The mechanism under stress is simple: every rupee of tax must come from somewhere. Either the consumer pays it through higher prices, or ITC absorbs it through thinner margins.

"The critical question is: how much of the additional tax burden can ITC transfer to consumers without sacrificing legal cigarette volumes and market share?" Kumar writes. "Pricing power is valuable only when customers continue buying the product."

That constraint cuts both ways. Price hikes protect margins but push smokers toward illicit or cheaper alternatives. Volume losses then erode the very cash flows that justify ITC's valuation premium.

What are the valuation scenarios?

Kumar models three illustrative outcomes based on FY28 earnings assumptions. He stresses these are scenario-based estimates, not analyst consensus or guaranteed price targets.

• Bear case: EPS of ₹12 at a 15x multiple, implying a valuation of ₹180
• Base case: EPS of ₹15 at a 19x multiple, implying a valuation of ₹285
• Bull case: EPS of ₹18 at a 22x multiple, implying a valuation of ₹396

The spread is wide. A ₹216 gap separates the bear and bull outcomes, which itself signals how much uncertainty the new tax regime has injected into earnings forecasts.

What do the charts show?

Kumar's technical read identifies four signals worth watching:

• Monthly RSI approaching oversold territory
• Previous historical support around the long-term moving average
• A possible retest of the 200-week EMA
• Whether price can reclaim the ₹320–325 zone and establish a higher-high structure

The ₹216 region becomes an interesting downside scenario if the correction extends. But Kumar cautions against reading a moving average as a reversal signal on its own. Support zones mark where buyers have previously stepped in; they do not guarantee they will again.

What determines the next move?

Kumar lists five indicators that will decide whether ITC's bearish cycle ends:

1. Cigarette volume stabilisation
2. Improvement in cigarette EBIT margins
3. Further price revisions and tax pass-through
4. FMCG growth and operating profitability
5. Whether the market starts pricing in an earnings recovery

His central thesis holds that the market may be focusing on the immediate taxation shock while overlooking ITC's long-term pricing power, cash-generating ability and diversified business portfolio.

He adds a discipline that separates valuation analysis from stock-picking: "A good company is not automatically a good investment at every valuation." The real opportunity, he writes, lies in identifying the price at which the market is discounting more bad news than the business fundamentals justify.

For investors, that turns the 36% drawdown into a measurement problem rather than a verdict. The stock becomes attractive only when the price fully absorbs the worst plausible tax outcome — and volume data over the coming quarters will show whether ITC's pricing power survived the 2026 regime intact.