ITC: Tobacco Tax a reason to worry?

The shares of India’s largest cigarette maker fell 6.3% to Rs 245.9 apiece on Tuesday. The stock hit an intraday low of Rs 245.3, and was the worst performer on the NSE Nifty 50,

A brief disclaimer that we are not SEBI registered analysts, please make all your investment-related decisions carefully

The news hit up the market today that there is a panel being formed for Tobacco-related taxation policy which will review the existing taxation structure

We are of the reason to believe that this news will not affect ITC’s share price,

Reasons being

- Technical chart pattern is still strong enough with today’s (19-10-2021) fall being only a bit of retracement.

- Tobacco taxation is already at peaks in India so all the existing taxes are already discounted in price

- If at all there is an introduction of GST to tobacco-related products even this could not affect share price as GST is ultimately charged to customers, although this could impact sales due to increase in price there should be a retrospective reduction in any other taxes by the government

- Concerns raised by management about share price in a previous board meeting

- If at all there is any tax hike that will only run up in budget – 2022, having a longer time frame it is most likely not a reason to panic

- Other news that is in support of ITC could be possible demerger and ITC manufacturing and competing with international brands in Cigarettes

- As claimed by other analysts that this tobacco policy could even nullify the chances of regular tax hikes in the Union Budget year on year

- Any rise in taxes could help them round off and increase their margin significantly

With upcoming quarterly results on 27th of this month, this fall and news could just be a lollipop hence we are issuing a “buy on every dip” for positional trade, for ITC with a strict stop of 227.