ITC, Godfrey Phillips Shares Surge After January Sell-Off as Cigarette Stocks Stage Strong Comeback

Shares of leading cigarette makers ITC Ltd and Godfrey Phillips India rose sharply on Thursday after a brutal start to 2026, as investors returned to tobacco stocks following last month’s heavy sell-off triggered by new cigarette taxes.

The rebound comes after January saw one of the worst months for cigarette stocks in years. ITC, in particular, recorded its poorest January performance on record, with sharp losses driven by concerns over higher excise duties and their impact on demand and profitability.

On 6 February, market sentiment shifted. Investors stepped back into beaten-down stocks, pushing ITC and Godfrey Phillips shares higher, as value buying and stronger quarterly results helped improve confidence.

Excise Duty Shock: Why Cigarette Stocks Crashed in January

The sell-off began after the government implemented a new excise duty on cigarettes and tobacco products from 1 February 2026. Under the revised structure, cigarette manufacturers must pay additional duties ranging from ₹2,050 to ₹8,500 per 1,000 sticks, depending on product length, on top of the existing 40% GST.

This led to fears of sharp price increases at the retail level, which could affect consumer demand and volumes. Since cigarettes contribute a large share of revenue and profits for companies like ITC, the market reacted quickly.

In January, ITC’s share price fell heavily, wiping out nearly ₹1 lakh crore in market capitalisation. The decline marked its worst January in history, with investors factoring in the long-term impact of higher taxation on the cigarette business. Other tobacco stocks, including Godfrey Phillips, also faced strong selling pressure.

The sharp fall reflected concerns that higher costs would force companies to raise prices, potentially slowing sales and affecting earnings in the coming quarters.

Market Rebound: ITC and Godfrey Phillips Lead Tobacco Stock Rally

On Thursday, sentiment reversed. Godfrey Phillips shares rose by over 11%, while ITC gained around 5% during trading, marking one of its strongest single-day performances in nearly 18 months.

The recovery was driven mainly by value buying, with investors viewing the earlier sell-off as overdone. Many market participants believe the stocks had corrected sharply on tax fears, creating opportunities at lower price levels.

Support also came from stronger quarterly earnings. Godfrey Phillips reported improved profit and revenue growth in the December quarter, boosting confidence in its business stability. ITC also posted steady Q3 results, showing resilience across its diversified portfolio, including FMCG, hotels, paperboards and agribusiness.

These results helped ease some of the concerns that the tax hike alone would significantly weaken financial performance in the near term.

Value Buying Returns After Heavy Sell-Off

Market experts say the recent rally reflects a shift from panic selling to selective accumulation. After weeks of declines, tobacco stocks entered oversold territory, attracting long-term investors.

The rebound suggests that investors are now differentiating between short-term tax impact and long-term business fundamentals. ITC’s diversified revenue streams, in particular, continue to provide stability beyond its cigarette business.

However, analysts caution that volatility may continue as markets assess the full effect of higher excise duties on pricing, volumes and consumer behaviour.

What’s Next for ITC and Tobacco Stocks After the Tax Hike

While the recovery has improved sentiment, the outlook remains mixed. Key factors investors are watching include:

• Retail price increases as companies pass on higher taxes to consumers
• Demand response to higher cigarette prices
• Volume trends in the coming quarters
• Margin protection strategies by manufacturers
• Diversification performance of large players like ITC

Analysts say the real impact of the tax changes will become clearer over the next few quarters, once pricing adjustments are fully implemented and consumer patterns stabilise.

Market View

The current rebound signals renewed investor interest, but tobacco stocks remain sensitive to policy changes and taxation risks. While short-term recovery is visible, long-term performance will depend on how effectively companies manage pricing, costs and diversification.

In summary, cigarette stocks have staged a strong comeback after a tax-driven sell-off, with ITC and Godfrey Phillips leading the rally. Value buying, earnings support and market correction dynamics have helped lift prices, but the sector’s future trajectory will depend on how the new tax regime reshapes demand and profitability.