Shares of tobacco and cigarette companies came under heavy selling pressure on Thursday after the government formally notified a new tax regime for tobacco and pan masala products. The announcement confirmed that higher levies would come into effect from February 1, 2026, triggering a sharp negative reaction from investors. Stocks such as ITC and Godfrey Phillips India were among the worst hit as markets priced in the impact of higher taxation on earnings and volumes.
Godfrey Phillips India saw a steep fall in early trade, with its stock plunging nearly 16 percent to around Rs 2,332 from the previous close of about Rs 2,762. The sharp decline reflected concerns that higher excise duties on cigarettes could significantly impact the company’s profitability, given its heavy dependence on tobacco products. Investors appeared wary of potential margin pressure and possible demand slowdown following price hikes.
ITC shares also came under strong selling pressure, dropping around 9 percent to about Rs 362.70, marking a 52-week low. Although ITC has a diversified business spanning FMCG, hotels, paperboards and agribusiness, cigarettes remain its biggest profit contributor. Any increase in taxation on tobacco products therefore has a direct bearing on investor sentiment toward the stock.
The sell-off followed a government notification issued on Wednesday confirming the replacement of the GST compensation cess with an additional excise duty on tobacco products. In addition, a new Health and National Security Cess will be imposed on pan masala. While GST rates themselves remain unchanged — 40 percent for cigarettes and 18 percent for bidis — the overall tax burden on these products will rise.
The government has said the move is aimed at maintaining high taxation on products considered harmful to public health even after the compensation cess period ends. However, markets have reacted negatively, factoring in the possibility of higher costs being passed on to consumers, lower volumes, and pressure on margins. With the implementation timeline now clearly defined, investors are reassessing earnings prospects for tobacco companies, leading to the sharp fall seen in stocks such as ITC and Godfrey Phillips.
