Should you invest in tobacco stocks?:Buy ITC at ₹305-320 levels for 20%-25% upside, says Mantri Finmart; avoid Godfrey Phillips, advises PHD Capital

The tobacco industry is facing a bit of a storm. Recent news about tax increases on tobacco products has sent shockwaves through the stock market, causing shares of major players like ITC and Godfrey Phillips to drop. But what does this mean for investors? Should you sell your shares, buy more, or simply hold on tight? Tax Hikes Cause Concern According to Pradip Halder, CEO of PHD Capital, the government’s move to increase taxes on tobacco could significantly impact cigarette prices. There’s speculation that a cigarette currently costing ₹18 could jump to ₹72. Halder advises investors to steer clear of tobacco stocks like ITC, Godfrey Phillips, and VST Industries for now, warning that they could “get their fingers burnt.” However, Halder also notes that historically, companies have raised prices to offset tax increases, and their stock prices have eventually recovered. He suggests that ITC might find support around ₹325-330 levels. While he doesn’t recommend buying now, he says the trend might change if the stock closes above ₹370 level. For those already invested, Halder suggests holding onto their positions. While, he sees a support zone of ₹1,700-1,750 for Godfrey Phillips. A Buying Opportunity? Arun Mantri, founder of Mantri Finmart, sees the recent slump as a potential buying opportunity, especially for ITC. He believes the market has already reacted to the news, and the diversified nature of ITC’s business makes it a good long-term investment. Mantri suggests accumulating ITC in the current zone and adding more if it dips towards ₹320-330. He recommends a stop loss below ₹300, with a target of ₹400-410 for the long term. ITC: A Safer Long-Term Bet? Lovelesh Sharma, co-founder of MarketFeds Analytics, points out that tobacco stocks, often called “sin stocks,” are subject to higher tax rates. However, he also notes that tobacco demand is relatively stable, allowing companies to pass on tax increases to consumers. Sharma considers ITC a safer long-term investment due to its diversified business, strong financial performance, and consistent dividend payouts. While Godfrey Phillips is fundamentally sound, it’s more exposed as a pure-play cigarette company, making it riskier. Sharma suggests long-term investors consider gradually buying ITC on dips, with a buy range of ₹305-320 and a stop loss at ₹275.
The experts have mixed opinions. One suggests avoiding tobacco stocks altogether, while others see a buying opportunity, particularly for ITC. The key takeaway is that the tobacco industry faces uncertainty due to potential tax increases. ITC, with its diversified business, is generally considered a safer bet than pure-play tobacco companies like Godfrey Phillips. Investors should carefully consider their risk tolerance and investment goals before making any decisions. Background! The government of India had notified the levy of additional taxes on tobacco products from 1 February 2026. This may increase the price of these products for consumers. Who’s Affected? Businesses that make and sell tobacco and pan masala will need to adjust to the new tax rules. The government had introduced two new taxes: Additional Excise Duty: This will be levied on tobacco products. Health Cess: This will be imposed on pan masala. These new taxes are on top of the Goods and Services Tax (GST) of 40% will be levied from 1 February . Currently, these products have a “compensation cess,” but that will go away from next month.