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.
India
-Gaurav Sharma
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.
Life
Insurance
Corporation
of
India’s
(LIC)
ITC
holding
fell
by
approximately
Rs
10,445
crore
due
to
a
stock
slide
following
the
finance
ministry’s
increase
in
cigarette
excise
duty,
impacting
ITC
shares
which
closed
at
Rs
350.10
on
Friday
and
leading
to
rating
cuts
from
brokerages
like
Motilal
Oswal
and
Jefferies.
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.
| Metric | Level |
|---|---|
|
ITC intraday low on Friday |
Rs 345.35 |
|
ITC Friday close |
Rs 350.10 (down Rs 13.75, or 3.8%) |
|
Two-day decline in ITC shares |
14% |
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”.
