6 February 2026 Punjab Khabarnama Bureau : Shares of cigarette makers ITC Ltd and Godfrey Phillips India surged sharply on Friday, rising by as much as 12% in intraday trade, as investors reacted positively to a combination of regulatory clarity, improved earnings outlook, and renewed optimism around the tobacco sector. The rally marked one of the strongest single-day performances for these stocks in recent months and drew significant attention from both institutional and retail investors.
Market participants attributed the surge primarily to expectations of policy stability in tobacco taxation and regulation. For years, cigarette stocks have faced pressure due to frequent tax hikes, stringent regulations, and ESG-related concerns. However, recent signals suggesting a pause or moderation in excise duty increases have boosted confidence that the worst may be over for the sector.
Investors believe that predictable tax policies could help cigarette manufacturers plan pricing strategies more effectively and protect margins. Historically, steep and sudden tax hikes have led to volume declines and encouraged illicit cigarette trade. A stable tax regime, analysts say, could allow legal manufacturers such as ITC and Godfrey Phillips to regain market share from unorganised and illegal players.
Another key factor driving Friday’s rally was optimism around earnings growth. Both ITC and Godfrey Phillips have demonstrated strong pricing power in recent quarters, enabling them to offset higher input costs. With inflationary pressures easing and raw material costs stabilising, investors expect operating margins to improve further.
ITC, in particular, has benefited from its diversified business model. While cigarettes remain its largest profit contributor, the company’s FMCG, hotels, paperboards, and agribusiness segments have shown steady growth. The market viewed ITC’s ability to balance a strong cigarette business with expanding non-tobacco verticals as a major positive, especially amid rising consumer demand in urban and semi-urban markets.
Godfrey Phillips, which has a stronger dependence on cigarettes, also gained from expectations of improved volumes and profitability. Analysts pointed out that premiumisation in the cigarette segment has supported higher realisations, while stable taxes could further strengthen demand. The company’s efficient cost management and focus on higher-margin brands have also played a role in improving investor sentiment.
Brokerage optimism further fuelled the rally. Several market experts highlighted that tobacco stocks were trading at relatively attractive valuations compared to their historical averages, particularly given their strong cash flows and dividend-paying ability. For income-focused investors, ITC remains a preferred pick due to its consistent dividends and robust balance sheet.
The broader market context also supported the uptrend. Defensive stocks gained traction amid volatility in global markets, with investors seeking stable earnings and predictable cash flows. Cigarette companies, despite regulatory risks, are often considered defensive due to steady demand and strong pricing power.
Additionally, there is growing belief that regulatory risks may be more than priced into tobacco stocks. Over the past decade, repeated concerns over taxation, plain packaging, and smoking bans have weighed heavily on valuations. The absence of fresh negative surprises in recent policy announcements has therefore come as a relief to investors.
Another supportive factor was the potential for higher returns to shareholders. Both ITC and Godfrey Phillips have strong balance sheets with low debt levels. Market participants expect companies to continue rewarding shareholders through dividends and, in some cases, buybacks, especially if cash flows remain strong.
Foreign institutional investors (FIIs) were also seen selectively adding positions in high-quality large-cap stocks, including ITC. The renewed interest from long-term investors added momentum to the rally, pushing prices higher through the session.
However, analysts caution that while the near-term outlook has improved, regulatory risks have not disappeared entirely. Tobacco remains a highly regulated sector, and any adverse policy move could quickly reverse gains. Health-related activism and ESG concerns also continue to limit institutional participation in the sector.
Despite these risks, Friday’s rally underscores a shift in market perception. Investors appear increasingly willing to look past long-standing concerns and focus on earnings visibility, cash generation, and valuation comfort. For ITC, its diversified growth strategy adds an extra layer of confidence, while Godfrey Phillips’ strong cigarette franchise positions it well if industry conditions remain supportive.
In the near term, market participants will closely watch policy developments, volume trends, and upcoming earnings updates. Any confirmation of stable taxation and sustained demand could help maintain positive momentum in tobacco stocks.
Summary
Shares of ITC and Godfrey Phillips surged up to 12% as investors cheered policy stability hopes, strong pricing power, attractive valuations, and improved earnings outlook for the tobacco sector.