Significant Decline in Tobacco Stocks Following New Excise Duty Announcement
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.