ITC-led sell-off drags FMCG index into the red despite firm broader markets
Indian equity markets witnessed sharp divergence on Friday as the Nifty FMCG index slipped over 1 percent, extending its two-day decline to more than 4 percent and hitting a nine-month low, even as most other sectoral indices traded in positive territory. The weakness was driven almost entirely by heavy selling in ITC, following recent changes to India’s excise duty framework for cigarettes and related tobacco products.
ITC shares declined for the second consecutive session, falling as much as 5.11 percent to an intraday low of ₹345.25, which also marked the stock’s 52-week low. Over just two trading sessions, the stock has lost more than 14 percent, eroding investor wealth at a pace rarely seen in recent years.
₹72,000 crore wiped out as ITC market capitalisation shrinks sharply
The sharp correction in ITC has had a meaningful impact on its market value. The company’s market capitalisation fell by over ₹72,000 crore, declining to ₹4.38 lakh crore as of January 2. This compares with its valuation levels prior to the government’s announcement on higher excise duties, which are set to come into force from February 1.
Market participants said the scale of the erosion reflects the stock’s heavyweight status within the FMCG index and the sensitivity of its earnings to regulatory changes in the cigarette business.
“ITC’s cigarette segment remains a significant earnings driver, and any adverse policy shift tends to get priced in quickly and aggressively,” said a senior market analyst tracking the FMCG sector.
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FMCG index hits lowest level since March amid broad-based pressure
The selling pressure in ITC spilled over to the broader FMCG pack. The Nifty FMCG index touched an intraday low of 52,741.85, its weakest level since March 21, 2025, when it had slipped to 52,670.60. Over the last two sessions, the index has declined more than 4 percent, underperforming the benchmark Nifty 50 by a wide margin.
Notably, the FMCG index was the only sectoral index trading in the red on Friday, underscoring how stock-specific developments overshadowed otherwise supportive market sentiment.
Other FMCG and consumer stocks also came under pressure:
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Radico Khaitan fell up to 3.55 percent
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United Breweries declined nearly 1 percent
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Nestlé India, United Spirits, Marico and Godrej Consumer Products slipped up to 1 percent
Excise duty changes trigger renewed concerns over cigarette volumes
The trigger for the sharp sell-off remains the finance ministry’s notification amending the Central Excise Act, announced late on Wednesday. Under the revised structure, an excise duty of ₹2,050 to ₹8,500 per 1,000 cigarette sticks, depending on length, will be levied from February 1, over and above the 40 percent GST already applicable.
In addition, the government notified the Health and National Security Cess Act, which imposes a cess on the manufacturing capacity of pan masala-related businesses. While the total tax incidence on pan masala remains unchanged at 88 percent, the restructuring of the tax framework has added to regulatory uncertainty for tobacco-linked businesses.
Brokerages have flagged that the cumulative tax burden could force cigarette makers to raise prices meaningfully, risking volume contraction and a possible shift toward illicit trade.
Spillover impact seen across listed tobacco companies
The negative sentiment was not limited to ITC alone. Shares of Godfrey Phillips India and VST Industries also remained under pressure across the two sessions.
Godfrey Phillips India fell 4.58 percent on Thursday and declined another 2 percent on Friday, while VST Industries extended its losses with another 1.6 percent decline. Analysts noted that while pricing power has historically helped large players absorb tax hikes, repeated increases tend to test consumer elasticity over time.
“The concern is not just near-term margins, but the longer-term impact on volumes if prices move sharply higher,” said an FMCG sector analyst.
Why ITC matters disproportionately to the FMCG index
ITC’s outsized influence on the FMCG index explains the sharp move in the sector gauge. The stock accounts for a significant weight within the index, and its steep fall over the past two days alone was enough to pull the entire FMCG pack lower, even as other sectors such as auto, metal and IT saw buying interest.
Despite its diversification into packaged foods, hotels and paperboards, cigarettes remain ITC’s most profitable segment, contributing a substantial portion of operating profits. This makes the stock particularly sensitive to regulatory and tax-related announcements.
What investors should watch going ahead
Market participants believe the FMCG index may remain volatile in the near term as investors reassess earnings visibility in cigarette-led businesses.
Key factors to monitor include:
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Management commentary on pricing strategy and volume impact
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Potential price hikes ahead of the February excise duty implementation
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Signs of demand slowdown or trade down in cigarette consumption
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Broader FMCG earnings trends outside tobacco-led companies
While some investors may view the sharp correction as an opportunity, analysts caution that regulatory overhang could continue to cap near-term upside for ITC and allied stocks.
“The stock may stabilise after the initial shock, but clarity on volumes and margins will be critical before confidence fully returns,” said a fund manager.
For now, ITC’s slide has firmly placed the FMCG sector under the spotlight, reminding investors how quickly policy risk can reshape market narratives—even in otherwise defensive segments.
