Up to 11% on intraday, shares of the world’s biggest cigarette and tobacco manufacturers went soaring. The bullish momentum comes on the heels of the Union Budget 2026-27, which brought an unexpected sense of optimism to the tobacco market. At a time when the authorities’ fiscal roadmap is coming to a close, investors are pinging on tobacco stocks, lining up for a “stable and predictable” regulatory environment for next year.
The Driver: No Surprise Tax Hike
The main impetus for today's rally today is the status quo on the National Calamity Contingent Duty (NCCD) and other cigarette-specific taxes included in the most recent Budget. Cigarette stocks have generally been volatile prior to the Budget, largely because of concerns about massive increases in taxes expected to discourage tobacco consumption.
“To think about inflation in this way, a lack of hike in tobacco taxes means it’s a good tax cut,” replied an analyst at a major Mumbai-based brokerage. “This puts companies like ITC and Godfrey Phillips in a position to retain their margins without them having to pass through on significant price increases something they would otherwise have faced to consumers.”
Stock Performance Today
- ITC Ltd: The index heavyweight rose 5.4%, reaching a 52-week top. Analysts pointed out that the continued demerger of ITC's FMCG and hotel division has helped lead to strong sentiment.
- Godfrey Phillips India: Was the biggest winner; the stock rose 11.2%. Rumors of dividend payout or buyback at the next board meeting further underpinned the jump.
- VST Industries: The cigarette maker based in Hyderabad also saw its shares gain another 4.8%, reflecting optimistic sentiment on the broader sector.
Favorable Volume Growth Outlook
With taxes continuing to remain stable, market analysts estimate that organized cigarette players will continue to drive market share from illicit/smuggled cigarettes. Stable pricing enables the legal industry to sustain demand growth and volume has stayed strong for the last four quarters.
Moreover, a rural recovery emphasized by the Budget supported by increased expenditure on agriculture and rural infrastructure is expected to boost consumption of entry-level cigarette sticks and tobacco products in smaller towns.
Technical View
Technically, ITC is emerging from a multi-month consolidation phase with huge trading flow. Market watchers believe that if the stock stays above the ₹520 level, the increase rate can also stay upward toward ₹580–₹600 in the mid-term.
