Life Insurance Corporation of India has suffered a major loss at the start of 2026. The government’s decision to raise cigarette taxes shook the stock market, prompting heavy selling. This placed ITC shares under strong pressure, with large investors experiencing the immediate impact.
LIC faced a notional loss of more than Rs. 11,000 crore in just two trading sessions. ITC shares dropped nearly 14% during this period. On January 2, the stock touched a new 52-week low of Rs. 345.25. This marked one of the sharpest falls for ITC in nearly six years. The decline wiped out Rs. 72,000 crore from the company’s market value.
The fall came after the government announced a steep increase in excise duties on cigarettes, which already attract a 40% GST. The Finance Ministry issued the notice on December 31. The new excise duty ranges from Rs. 2,050 to Rs. 8,500 per 1,000 sticks, depending on the length of the cigarette. The new tax will apply from February 1, 2026. This move replaced the previous compensation cess system.
Market reaction remained negative after the announcement. Experts expect cigarette prices to rise by 20% to 40%. Companies are likely to pass the higher tax cost to buyers, which can lead to reduced demand. Cigarettes contribute more than 40% of ITC’s revenue. Any drop in sales may hurt earnings.
LIC is the second-largest shareholder in ITC. The insurer holds a 15.86% stake, equal to about 198.6 crore shares. The value of this holding fell from nearly Rs. 80,000 crore to approximately Rs. 69,500 crore in two days. LIC has maintained its stake at similar levels since 2017. The sharp fall has affected its investment value.
Other major investors also faced losses. SBI Mutual Fund holds more than 3% in ITC. ICICI Prudential Mutual Fund owns over 2%. Parag Parikh Flexi Cap Fund also has shares. Tobacco Manufacturers India remains the largest shareholder with a 17.79% stake.
Brokerage firms turned cautious after the tax hike. Emkay Global cut its rating to Reduce and lowered its target price to Rs. 350. Nuvama downgraded ITC to Hold with a target price of Rs. 415. Motilal Oswal shifted to Neutral with a Rs. 400 target. JP Morgan also downgraded the stock and set a target of Rs. 375. Analysts warn about lower sales and the rising illegal trade of cigarettes.
Some experts believe the impact may ease over time as ITC continues to grow its FMCG and hotel businesses. These segments may support earnings. Long-term investors like LIC often focus on stable dividends.
The LIC’s huge loss on its ITC investment shows how policy changes can quickly affect large investments. Investors will now closely watch pricing and demand trends in the coming months.
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