Why did Godfrey Phillips and ITC shares fall by up to 10% today?

SYNOPSIS: Shares of ITC and Godfrey Phillips fell sharply after the government announced higher taxes on cigarettes and tobacco, raising concerns over pricing, margins, and future demand for tobacco-led FMCG companies.

Late on Wednesday, the government announced a hike in excise duty on cigarettes, bidis and other tobacco products, a move that immediately caught the market’s attention. The Finance Ministry of India notified that a 40 percent GST will be levied, from the existing 28 percent, along with the subsuming of excise and NCCD, effective 1st February 2026.

In addition, the ministry clarified that a specific excise duty ranging from Rs. 2,050 to Rs. 8,500 per 1,000 cigarette sticks, depending on cigarette length, will also come into force from the same date.

For investors, the big question now is whether this will be the final tax change or if additional cess or duties could follow – and what the overall tax burden will eventually look like. Health concerns linked to smoking have long been a policy priority, given their strain on public healthcare. Over the years, the government has tried to curb consumption through larger warning labels and regular tax hikes.

This announcement also follows the approval of the Central Excise (Amendment) Bill, 2025, in December, which replaced a temporary levy on cigarettes and tobacco products with a more permanent structure. While the government hasn’t yet indicated how much of this increase will be passed on to consumers, analysts believe price hikes are likely.

Market reaction: tobacco stocks feel the heat

At present, total taxes on cigarettes in India make up about 53 percent of retail prices, still well below the World Health Organisation (WHO) benchmark of 75 percent, which is aimed at discouraging consumption. According to analysts at ICICI Securities, the latest duty hike could translate into a 22–28 percent increase in overall costs for cigarettes measuring 75-85 mm. They also noted that cigarettes longer than 75 mm – about 16 percent of ITC’s volumes – could see price increases of Rs. 2-3 per stick.

Unsurprisingly, the market reacted sharply. Shares of Godfrey Phillips India Limited, the distributor of Marlboro and other well-known brands in India, fell as much as 12 percent on Thursday, 1st January, hitting an intraday low of Rs. 2,433 on the BSE. This marked its steepest single-day fall in five months and left the stock down over 38 percent from its 52-week high of Rs. 3,945.

Shares of ITC Limited also slipped to their lowest level in nearly three years, touching a fresh 52-week low of Rs. 370.05, down over 8 percent in early trade. While the tax announcement weighed on sentiment, part of ITC’s decline was also attributed to a block deal in the stock. ITC emerged as the biggest loser on the Nifty 50, dragging the FMCG index, which was down 2.8 percent at 53,904.8.

In Q2 FY26, cigarettes and related products contributed around 98 percent of Godfrey Phillips’ consolidated revenue, while ITC’s cigarette business accounted for nearly 41 percent of its total revenue.

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