ITC shares experienced a 5% surge to ₹266.90 on Friday, marking the sharpest intraday rally in six months and making it the top gainer in the 30-share BSE Sensex. According to Business Standard, this represents the best performance since October 5, when the stock had gained 4.98%, and follows a 5.66% surge on February 6. The stock hit a multiyear low at ₹253.15 on Thursday, October 8, 2026, while touching a 52-week high of ₹426.50 on October 31, 2025. The rally comes after Citi upgraded ITC stock to 'BUY' from 'SELL' and raised its target price to ₹300 from ₹280, as the brokerage believes the earnings downgrade cycle is largely over and the stock's 34% year-to-date correction has already priced in risks around a potential cigarette tax hike.
GQG Partners entities sold 365 million shares in ITC worth ₹9,395.40 crore in a block deal on Thursday across multiple tranches, representing 2.91% of ITC's total equity at ₹257.35 per share. As per Business Standard, Fidelity Advisor Series VIII, ICICI Prudential MF, SBI MF, Nippon India MF and Citigroup Global Markets Singapore Pte were among the large buyers of these shares. Alliance Witan PLC also sold 1.611 million shares worth ₹41.5 crore in the block deal. According to June 2026 shareholding data, GQG Partners and its entities held a 3.12% stake in ITC prior to this transaction. The institutional activity reflects continued confidence in ITC's long-term prospects despite near-term challenges.
The positive sentiment around ITC stems from expectations of better Q2 results due to improved margins following the decline in tobacco prices. As reported by Citi, analysts forecasted near-term earnings pressure due to sharp increase in cigarette taxation, but noted that the sharp decline in stock prices has reduced associated volume and profitability risks. Citi estimates that around 75% of any tax increase has been passed on through price hikes, expecting calibrated pricing actions to support cigarette profitability even as the business faces near-term volume pressure. The brokerage expects cigarette volumes to remain under pressure in the near term as higher prices affect consumption, but new product launches could help ITC retain consumers and limit downtrading. While it expects cigarette EBIT to decline 23% in FY27 due to competition from other branded and illicit products, recovery is anticipated from FY28 as pricing action gains traction and profitability normalises.
Kotak Institutional Equities believes a vertical split of ITC into two separate entities could unlock significant value for shareholders. According to Business Standard, the brokerage proposes the tobacco business in one entity and non-tobacco businesses in another entity. The tobacco entity will likely attract 'value' shareholders looking for steady growth and high dividend yields while the non-tobacco entity will attract 'growth' investors as well as a broader set of investors who will not be deterred by ESG concerns associated with tobacco. Kotak's reverse-sum-of-the-parts (SoTP) valuation exercise implies about 10.5-11X 1-year forward EPS for the tobacco business, with the brokerage modeling ITC's tobacco segment EBIT to be flat over FY26-29E and non-tobacco FMCG segment EBIT to grow at a 19% compound annual growth rate (CAGR) over FY26-29E. The brokerage's 12-month SoTP valuation of ITC is ₹360 per share, significantly higher than Citi's ₹300 target.
According to SMC Global Securities, ITC posted a double-digit drop in net profit as higher tax burdens and compressed EBITDA margins weighed heavily on its core cigarette segment, though robust double-digit growth in its non-cigarette FMCG and paperboards divisions provided essential diversification buffers. Similarly, VST Industries reported sharp declines in net profit during Q1FY27, weighed down by higher levies and growing competitive pressures. The new tax regime has replaced the earlier framework of 28% GST plus variable Compensation Cess with a uniform 40% GST slab, along with higher length-based Additional Excise Duties ranging from ₹2,050 to ₹8,500 per 1,000 sticks. As per Avinash Mentor Research, higher cigarette prices should support a sequential recovery in margins after the sharp taxation impact in Q1 FY27, though investors should wait for management commentary before taking a more constructive view. Citi also noted that consensus earnings per share (EPS) estimates for FY27 and FY28 have been cut by 23% and 21% respectively year-to-date.
Among the cigarette companies, SMC Global Securities identifies ITC as the preferred stock to buy for long-term investors ahead of Q2 results. The brokerage notes that ITC's multi-layered business model—anchored by a recovering paperboards segment, expanding non-cigarette FMCG brands, and strong operational scale—gives it superior structural resilience compared to pure-play peers like VST or Godfrey Phillips. According to SMC Global Securities, accumulating ITC on post-tax correction phases allows investors to harness a high dividend yield and steady margin recovery as pricing adjustments gradually take full effect. The company's recovery prospects are further supported by its diversified portfolio across FMCG, agri-business, and other segments beyond tobacco, with c.75% of the tax increase already passed through price hikes and new launches helping retain consumers within ITC's portfolio. Despite near-term volume pressure, Citi expects cigarette profitability to improve sequentially through FY27 as pricing actions gain traction and profitability normalises.
