Significant Decline in Tobacco Stocks Following New Excise Duty Announcement

On the first trading day of 2026, shares of major tobacco companies like ITC and Godfrey Phillips India saw significant declines due to a new excise duty announced by the government. ITC's stock dropped nearly 10%, while Godfrey Phillips fell by 19%. The Finance Ministry's decision to implement this duty aims to reduce tobacco consumption for health reasons, but it raises concerns about increased cigarette prices and potential impacts on legal sales. Analysts suggest that investors may want to consider buying on dips, despite expected short-term pressures.

By Narendra Chaudhary Jan 1, 2026, 17:32 IST

Tobacco Stocks Plummet on New Year’s Trading Day

Mumbai, January 1, 2026: On the first trading day of the new year, shares of tobacco companies experienced a sharp decline. Following the government's decision to impose an additional excise duty on cigarettes and tobacco products, ITC's stock fell nearly 10%, reaching a 52-week low of Rs 362.70. Meanwhile, shares of Godfrey Phillips India plummeted by 19%, trading around Rs 2,230.

Late Wednesday, the Finance Ministry issued a notification announcing that a new excise duty on cigarettes would take effect from February 1, 2026. The duty will range from Rs 2,050 to Rs 8,500 per 1,000 cigarettes, depending on their length. This new tax will be added on top of the existing 40% GST, raising concerns about potential increases in cigarette prices.

Details of the Stock Decline

Stock Performance Overview

ITC: Approximately 9-10% drop, intraday low of Rs 362.70 (52-week low). The company's market value has decreased by around Rs 50,000 crore.

Godfrey Phillips India: A significant decline of 15-19%, marking the largest single-day drop since November 2016.

Other tobacco stocks, such as VST Industries, also fell by 4-7%.

Impact of the New Duty

According to brokerage firm Jefferies, ITC may need to raise prices by at least 15% to maintain margins, particularly affecting long cigarettes (over 75 mm), which account for 16% of ITC's volume.

Reasons for the Duty Increase

Introduction of a new excise duty in place of the GST compensation cess.

Aiming to reduce tobacco consumption for health reasons.

Aligning with the WHO's benchmark of 75% tax, while India currently stands at about 53%.

A new health and national security cess will also be applied to gutkha.

Market Reactions and Future Outlook

Analysts suggest that this could negatively impact legal cigarette sales and potentially boost the illegal market. ITC derives over 40% of its revenue from its cigarette business, making it particularly vulnerable to these changes.

Investors have faced a setback at the start of the new year. While rising prices may affect consumers, this move is viewed positively from a health perspective. Market experts recommend that long-term investors consider buying on dips, although short-term pressure is expected to persist.