A sharp increase in government excise duty on tobacco products triggered a significant market correction for ITC Ltd., India's largest cigarette manufacturer. The company saw its market capitalization plummet by over $7 billion following the announcement, prompting a series of downgrades from major financial institutions.

Shares of ITC experienced a 3.8% decline on Friday, reaching their lowest point since February 2023. This drop compounded a near 10% slide that began in the previous trading session. The immediate cause was the government's decision to raise excise duty on cigarettes, a move that directly impacts ITC's core business.

The tax hike spurred at least a dozen brokerages to reassess their outlook on ITC. Prominent firms such as Goldman Sachs Group Inc., JPMorgan Chase Co., and Morgan Stanley all downgraded the stock, citing concerns about the impact on ITC's profitability and future growth prospects. The downgrades further intensified selling pressure on the stock.

ITC is a diversified conglomerate with a significant presence in the Indian consumer goods market. While cigarettes remain a key revenue driver, the company also operates in sectors such as packaged foods, personal care, and agribusiness. However, the substantial contribution of tobacco to its earnings makes it particularly vulnerable to changes in tobacco taxation policies.

The future outlook for ITC remains uncertain. Analysts will be closely monitoring the company's ability to mitigate the impact of the tax hike through cost optimization, price adjustments, or diversification efforts. The extent to which ITC can adapt to the new fiscal environment will be crucial in determining its long-term performance and investor confidence.