Shares of ITC Ltd. experienced their steepest decline in almost six years following the Indian government's decision to increase the tax on tobacco products. The move raised concerns about the potential impact on ITC, India's leading cigarette manufacturer.

The government notification, released late Wednesday, stipulated that cigarettes would be subject to an excise duty ranging from 2,050 to 8,500 rupees per 1,000 sticks, effective February 1st. Jefferies Financial Group Inc. estimated that if the National Calamity Contingent Duty, a surcharge on goods deemed harmful, remained in place, the higher charges would translate to a tax increase exceeding 30%.

The market reacted swiftly to the news, with investors expressing apprehension about the potential impact on ITC's profitability. The company, a dominant player in the Indian cigarette market, has historically navigated complex regulatory environments and fluctuating tax regimes. However, a tax hike of this magnitude presents a significant challenge.

ITC is a diversified conglomerate with interests spanning consumer goods, hotels, paperboards, and agriculture. However, its cigarette business remains a substantial contributor to its overall revenue and profit. The company's ability to pass on the increased tax burden to consumers without significantly impacting sales volume will be crucial in mitigating the financial impact.

Looking ahead, the long-term implications of the tax hike remain uncertain. Analysts will be closely monitoring ITC's pricing strategies, sales volumes, and market share in the coming quarters. The company's ability to adapt to the changing regulatory landscape and maintain its profitability will be key to its future performance. The broader impact on the Indian tobacco industry, including potential shifts in consumer behavior and the growth of illicit cigarette trade, will also be closely watched.