ITC, India's largest cigarette manufacturer and consumer staples company, has been significantly impacted by the Indian government's recent announcement of a substantial hike in cigarette excise duties, which will take effect from February 1, 2026. This policy change has triggered a wave of downgrades from numerous leading brokerages, with at least 12 firms, including Morgan Stanley, Goldman Sachs, J.P. Morgan, Jefferies, Nuvama, Motilal Oswal, and Emkay Global Financial Services, revising their ratings and cutting price targets for ITC shares. The new tax structure introduces specific excise duties ranging from ₹2,050 to ₹8,500 per 1,000 sticks, depending on cigarette length, in addition to a 40% Goods and Services Tax (GST). This revised framework replaces the earlier regime of 28% GST plus a compensation cess, effectively raising the overall taxation burden to 60-70% per stick for manufacturers like ITC. Analysts describe this as an 'unprecedented' and 'steepest' tax increase in over 15 years, significantly clouding ITC's earnings visibility and raising concerns over pricing power, sales volumes, and profit margins. The market reacted sharply to the news, with ITC shares plummeting to a 52-week low and experiencing its steepest single-day decline in nearly six years, eroding billions in market capitalization. Brokerages now anticipate that ITC may need to implement substantial price increases, potentially up to 30-40%, to offset the higher tax burden, which could lead to a decline in demand and a shift towards illicit cigarette trade. The Tobacco Institute of India has called for a review of the decision, warning of adverse impacts on farmers, MSMEs, retailers, and a potential boost to the illicit market. The full impact on ITC's earnings is expected to become more visible from fiscal year 2027.