ITC's 'Falling Knife' Plunge: Why Investors Shun the Once-Loved Stock After Tax Hike

• ITC shares plummeted ~14% in two sessions, hitting near three-year lows, after a ~50% tax hike on cigarettes by the Ministry of Finance.
• The tax hike, effective Feb 1, forces ITC to consider a ~25% price increase across its cigarette portfolio to maintain net realization.
• 'Falling knife' describes a stock in sharp, continuous decline with an unknown bottom, posing high risk for investors trying to buy cheap.
• ITC's situation is a 'falling knife' due to fundamental changes (tax hike impacting core cigarette business) and uncertainty over future earnings and volumes.
• Investors are advised to avoid 'falling knife' stocks, especially when declines are due to policy changes, until the business impact is clear and downgrades cease.

Why It Matters: ITC's sharp fall due to cigarette tax hike highlights 'falling knife' risk; cheap isn't always value.