ITC, Godfrey Phillips, VST Ind slip up to 6% in 2 days on new cigarette tax

Tobacco-related stocks slipped up to 5.5 per cent on Monday, February 2, 2026, for the second session after the new tax regime on tobacco products came into effect from February 1, 2026. In two sessions, ITC shares declined over 5 per cent, Godfrey Phillips over 6 per cent and VST Industries over 3 per cent. 

At 10:11 AM, ITC share price was trading 1.58 per cent lower at ₹304.7, Godfrey Phillips India shares were down 4.6 per cent at ₹1,902.8 per share, and VST Industries shares were down 1.87 per cent at ₹225.45 per share. In comparison, the BSE Sensex was up 0.14 per cent at 80,838.22.  

 

ICICI Securities, in its note, had said that the new excise duty on cigarettes has been set in the range of ₹2,050 to ₹8,500 per 1,000 sticks, depending on cigarette length and filter category. Cigarettes up to 65mm are expected to be in the lowest bracket, while cigarettes exceeding 75mm are likely to be in the highest duty bracket.  ALSO READ | Nifty Metal sheds 9%, Hind Zinc 20% in 2 days; what should investors do? 

The impact of new taxes will be visible in the March quarter numbers, according to analysts. “The steep price increase is definitely going to impact both sales and margins in the medium to long term for tobacco companies. However, tobacco stocks often exhibit a paradoxical movement; despite significant price hikes, there is a probability of a trend reversal because these are habitual items with relatively inelastic demand,” said Kranti Bathini, director of equity strategy at WealthMills Securities.  Bathini added: Among tobacco stocks, one can hold ITC for the long term given its strong business model and diversified portfolio. In fact, ITC is a ‘buy on dips’ candidate.  Emkay Global Financial Services maintained a cautious stance on ITC, citing significant headwinds from the new goods and services tax (GST) and excise rates effective February 1.  ALSO READ | Bank of Baroda shares fall as analysts downgrade stock after Q3 results  The brokerage warned that the sharp tax hikes will necessitate substantial price increases, likely pressuring legal volumes and inviting competition from illegal trade. The brokerage iterated ‘Reduce’ with a target of ₹350 per share.  

Meanwhile, Motilal Oswal Financial Service maintained ‘Neutral’ raing on ITC with a target of ₹365 per share. It said earnings pressure on cigarettes would take away the near-term catalysts (soft tobacco prices, recovery in FMCG, and Paper) and comfort on ITC’s valuation.  ITC has a full cigarette portfolio to better navigate the tax increase, but competitive pressure from illicit cigarettes will take a toll on the formal cigarette industry, the brokerage added. 

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