ITC, Godfrey Phillips Surge Up to 12% on Cigarette Price Hikes

Introduction

Shares of major tobacco companies, including ITC Ltd. and Godfrey Phillips, experienced a significant rally on Friday, February 6, 2026. ITC's stock jumped as much as 5.5%, its largest single-day gain since July 2024, while Godfrey Phillips shares soared by 11.3%. This sharp upward movement follows reports that cigarette manufacturers have implemented substantial price increases to counter the impact of a new tax structure that came into effect at the beginning of the month. The rally marks a notable reversal from the heavy selling pressure seen in January.

The Catalyst: Significant Price Increases

Market sentiment turned positive following reports that cigarette companies have raised prices by 15% to 30% across various brands. According to sources cited by CNBC-TV18, these price adjustments are a direct response to the new tax regime. For instance, a 97mm pack from Godfrey Phillips, which was previously priced at ₹240, is now being sold for ₹300, reflecting a 25% increase. This proactive measure to protect profit margins appears to have reassured investors who were concerned about the financial impact of higher taxes on the companies' earnings.

A Sharp Reversal from January's Slump

The gains on Friday stand in stark contrast to the performance of tobacco stocks in the preceding month. ITC, in particular, had a difficult start to the year, with its stock plummeting by 20% in January. This was reportedly the worst start to a calendar year for the stock in at least three decades. The sell-off was triggered by a government announcement that created significant uncertainty about the industry's future profitability, pushing ITC's stock to a three-year low.

The Root of the January Decline: New GST Rate

On January 1, 2026, the Finance Minister announced a new Goods and Services Tax (GST) rate of 40% on tobacco and cigarettes, which became effective on February 1. This announcement led to a wave of downgrades from analysts, who feared that the higher tax burden would erode the company's earnings. The number of 'sell' recommendations on ITC's stock reached a record high as investors reacted to the perceived risks to profitability and potential volume decline.

Market Performance and Key Metrics

On Friday, the positive sentiment translated into strong market performance. ITC's stock closed 4.6% higher at ₹324.25, snapping a two-day losing streak and becoming a top contributor to the Nifty 50's recovery. The surge also pushed the company's market capitalization back above the ₹4 lakh crore mark. Godfrey Phillips ended the day with a substantial gain of 11.3%, trading at ₹2,206.9. The rally has turned ITC's stock positive for the month of February, erasing some of the deep losses from January.

Investor Sentiment and Analyst Outlook

The recent price hikes signal that cigarette manufacturers are willing and able to pass on the increased tax burden to consumers, a move that is crucial for maintaining their margins. This has helped alleviate some of the market's worst fears following the tax announcement. While January saw a spike in negative ratings, the industry's ability to adjust its pricing strategy may lead analysts to reconsider their earnings estimates. The focus now shifts to how these higher prices will affect consumer demand and sales volumes in the coming quarters.

What Lies Ahead

Despite the relief rally, some uncertainty remains. The provided information notes that complete clarity is still needed regarding the potential imposition of additional duties or cess on top of the 40% GST rate. The total tax impact on the final product is not yet fully understood, and any further government announcements will be closely monitored by the market. The long-term performance of these stocks will depend on a stable tax environment and the companies' ability to manage sales volumes in a higher-priced market.

Conclusion

The surge in ITC and Godfrey Phillips shares highlights the market's sensitivity to pricing power in the tobacco industry. After a month of steep declines driven by tax-related fears, the news of significant price hikes has provided a strong, positive catalyst. Investors have interpreted this as a sign of the industry's resilience and its capacity to protect profitability. However, the situation remains fluid, with the full impact of the new tax structure yet to be determined.