ITC, Godfrey Phillips shares fall up to 3% after Budget 2026: Here's why

Cigarette stocks

• ITC and Godfrey Phillips shares drop as new cigarette excise duty starts
• Excise duty hike may raise cigarette prices by 22–50%, affecting volumes and profits
• Cigarette taxes are 53% of retail price, below WHO's 75% target.

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The shares of ITC and Godfrey Phillips India dropped in trade on February 1 as the new excise duty on cigarettes will take effect from today onwards. Additionally, a key announcement in Budget 2026 also pushed the stocks down.

ITC shares fell more than 3 percent to Rs 311.6 apiece, while Godfrey Phillips India shares declined more than 2 percent to Rs 1,990.50 apiece.

The shares of the two cigarette-makers had dropped more than 11 percent in January after the government notified that the excise duty hike will be imposed from February 1.

Additionally, Budget 2026 which was presented today by Finance Minister Nirmala Sitharaman in the Parliament, hiked NCCD rate on chewing tobacco, jarda scented tobacco and others to 60 percent from 25 percent from May 2026. This will likely be a major regulatory overhang for the cigarette companies as well.

Central Excise (Amendment) Bill, 2025:

The Parliament in December last year approved the Central Excise (Amendment) Bill, 2025, clearing the way for a sharp increase in duties on cigarettes and other tobacco products. It replaces a temporary levy on cigarettes and tobacco products.

The excise duty would be imposed on cigarettes in addition to a 40 percent GST, according to an order issued late on Wednesday. The finance ministry notified that an excise duty of Rs 2,050–8,500 per 1,000 sticks, depending on cigarette length, will take effect from February 1.

Total taxes on cigarettes in India currently account for about 53 percent of the retail prices, well below the World Health Organization (WHO) benchmark of 75 percent which is aimed at discouraging consumption. This includes a 28 percent goods and services tax and additional value-based levy based on the size of the cigarettes.

The duty translates into a 22-28 percent increase in overall costs for 75-85 mm cigarettes, analysts at ICICI Securities said. "Cigarettes longer than 75 mm account for roughly 16% of ITC's volumes and are likely to see price increases of 2–3 rupees per stick as a result of the levy," they said.

Cigarette stocks:

ITC shares had declined nearly 17 percent during a nine-day losing streak between January 1 and January 13. Prabhudas Lilladher in its latest research report lowered its target price for the shares of ITC to Rs 314 apiece from Rs 348 earlier, while maintaining its ‘Reduce’ call. The latest target price implies a downside potential of more than 1 percent from the stock’s previous closing price of Rs 318.6 apiece.

The domestic brokerage said that it remains “cautious” on the cigarettes segment, as it expects a 22–50% price increase due to new excise rates which could impact volumes and profitability in the near term. “However, we expect ITC to do well in other category given 1) likely decline in wood prices and benefits of MIP imposition in paper board 2) expected further recovery in demand and margins in FMCG business led by favorable macro policies. FMCG business displayed resilience with Digital First & Organic portfolio growing by 60% in Q3,” it added.

Godfrey Phillips shares meanwhile fell 18.5 percent between January 2-3.

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