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The recent surge in ITC and Godfrey Phillips shares reflects an immediate investor pivot toward cost-pass strategies following January's regulatory headwinds. While the sharp price increases offer a technical reprieve, the market's focus is shifting to whether these gains are sustainable, particularly for ITC, which an influential analyst deems significantly undervalued.
The Core Catalyst: Rebound Fueled by Valuation Optimism
ITC's stock experienced a notable uplift, climbing 5.6% to an intraday peak of ₹327.70 on February 6, 2026, on the back of a substantial increase in trading volume, with over 45 million shares changing hands on exchanges. This rally is being interpreted by some as a correction to an oversold position, amplified by a strong endorsement from Equinomics Research founder G Chokkalingam. He argues that ITC's stock was "beaten down beyond what it deserved," projecting a fair valuation in the ₹375-₹380 range. This target is derived by applying sector-specific multiples to ITC's diverse business segments, including FMCG at a 15-17x P/E, the cigarette business at 14-15x P/E, and its IT arm at 2.5x annual sales [cite:Source A]. The stock's 20-day moving average (20-DMA) stands at ₹321.50, and its ability to trade above this level for the first time in over a month signals a potential shift in short-term momentum [cite:Source A].
The Analytical Deep Dive: Benchmarking and Tax Uncertainty
Parallel to ITC's advance, fellow tobacco player Godfrey Phillips India also posted strong gains, surging over 12% intra-day. This sector-wide recovery suggests an attempt to absorb the impact of the new tax regime, which levied a 40% Goods and Services Tax (GST) on cigarettes effective February 1, 2026 [cite:Source A]. However, beneath the surface of this rebound lies significant uncertainty regarding the long-term ramifications of these tax hikes on consumer demand. While Chokkalingam suggests that any dip in cigarette volumes due to higher prices typically fades over a 6-12 month period [cite:Source A], the actual consumer response remains a critical variable. On a comparative basis, ITC presents a more attractive valuation profile than Godfrey Phillips. ITC's P/E ratio hovers around 18.3-20.3, notably lower than Godfrey Phillips' 24.8-30.45 P/E range. Furthermore, ITC commands a significantly larger market capitalization of approximately ₹4 lakh crore compared to Godfrey Phillips' ₹31,584 Cr - ₹34,199 Cr. ITC also offers a more robust dividend yield, around 4.45%-4.63%, versus Godfrey Phillips' 1.46%-1.82%.
ITC's financial metrics also suggest superior operational efficiency, with a ROCE of 36.8% and ROE of 27.3%, outperforming Godfrey Phillips' ROCE of 26.3% and ROE of 19.9%. The broader Nifty FMCG index recorded a 1.7% gain on the day, indicating sector-specific strength amidst a slight dip in the overall market, with the Sensex and Nifty down 0.2% and 0.3% respectively [cite:Source A]. Despite these positive indicators, market intelligence from February 5, 2026, highlighted that ITC's Mojo Score had been upgraded to 'Hold' with a consensus price target of approximately ₹310, suggesting a divergence in outlooks compared to the more bullish stance of Chokkalingam.
The Future Outlook: Divergent Views and Volume's Verdict
The current market action for ITC and Godfrey Phillips represents a clear attempt to recover from January's steep declines, driven by perceived undervaluation and strategic pricing adjustments. While the rebound is technically encouraging, particularly for ITC, the true test of its sustainability lies in the company's ability to navigate the evolving consumer landscape post-tax increases. The significant disparity between Chokkalingam's ambitious target of ₹375-₹380 and the broader consensus price target of ₹310 underscores the speculative nature of the current recovery. Investors will closely monitor cigarette volume trends and consumer pricing elasticity in the coming quarters to determine if the market's optimism is justified or merely a short-term technical bounce against a backdrop of regulatory uncertainty.