Tobacco Stocks Slide: ITC, Godfrey Phillips Fall Up to 19% After Excise Duty Hike Announcement

Shares of major tobacco companies fell sharply on January 1, 2026, after the government announced that additional excise duty on tobacco products and a new cess on pan masala will come into effect from February 1.

The news triggered heavy selling across the sector.

Tobacco Stock Price Performance

At around 12:24 PM:

• ITC was down over 9%
• Godfrey Phillips India plunged nearly 18%
• VST Industries slipped around 4%

During intraday trade, losses deepened further, with ITC hitting a 10% lower circuit, Godfrey Phillips falling over 19%, and VST Industries dropping more than 7%.

What Changed in the Tax Structure?

The government has notified:

• Additional excise duty on tobacco products
• Health and National Security Cess on pan masala

It has also introduced new rules for determining and collecting duty on chewing tobacco, jarda scented tobacco, and gutkha packing machines, effective in 2026.

Parliament had cleared the required Bills in December, and February 1 has now been set as the implementation date.

Impact on Cigarette Taxes

• Excise duty on cigarettes could range between ₹2,050 and ₹8,500 per 1,000 sticks, based on size and filter type.
• Cigarettes up to 65mm may see little or no tax increase.
• Cigarettes above 75mm could face a 48–50% tax hike, raising overall costs by 22–28%.

This is a concern for companies like ITC, as cigarettes longer than 75mm account for around 16% of its total cigarette volumes. Price hikes of ₹2–3 per stick may be needed to offset the higher duty.

Also Read: Wipro vs Infosys: Which IT Services Company Delivered Highest Earnings in Q2FY26?

Block Deal Adds to ITC Pressure

ITC shares also came under added pressure after a block deal involving 37.6 million shares, or about 0.3% of its equity, was reported. Details of the buyers and sellers were not disclosed.

Conclusion

Tobacco stocks saw sharp declines after the government confirmed higher taxes on tobacco and pan masala from February 1. With steeper duties on longer cigarettes and uncertainty around pricing impact, investor sentiment in the sector remains cautious in the near term.

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