Despite cigarette prices going up sharply post the tax changes, a report by JM Financial stated that consumer demand remains unchanged. After the recent tax implementation, cigarette prices have surged 41%. However, according to the latest report by the brokerage house, demand trends stayed positive through January 2026, continuing the steady momentum seen earlier in the financial year. Interestingly, there is a shift in preference trend, though.
JM Financial noted that this is a shift from historical trends, where cigarette volumes typically ranged between a decline of 2% to flat growth.
Cigarette prices have gone up sharply across segments
The biggest visible change for consumers has been the sharp increase in prices across cigarette categories. According to the report, price hikes were implemented in phases after the revised tax structure came into effect on 1 February. The steepest increase was seen in the premium KSFT segment (above 75mm), where prices rose by about Rs 7 per stick, or roughly 41%.
Mid-range RSFT cigarettes (66–70mm) saw a price increase of Rs 2–2.5 per stick (around 20%), while smaller DSFT cigarettes (below 65mm) saw a relatively modest increase of Rs 1 per stick (around 10%).
Smokers are switching to cheaper options
JM Financial added that one way that consumers are adjusting to the new changes is by switching to more affordable options. The report added that smokers are shifting within or across segments to manage the costs. Within the premium KSFT category, some consumers are opting for lower-priced variants instead of moving out of the segment entirely.
However, a more noticeable shift is happening in the mid-range segment, where consumers are moving from RSFT to cheaper DSFT products.
Supply disruptions briefly affected availability
Consumers may also have noticed inconsistent availability in recent months. The report points out that supply chain disruptions emerged after 1 February, as companies adjusted to the new pricing and tax regime. Inventory levels dropped, manufacturing slowed, and distributors received a mix of old and new price stocks during the transition period, the report noted.
However, the report added that supply conditions began to stabilise towards the end of March, improving availability across products.
Illicit cigarettes remain a growing concern
Another consequence of rising prices is the increasing risk of consumers turning to illegal alternatives. The report flagged a rising incidence of illicit cigarette trade. It further added that such products are widely available and often attractive to retailers due to higher margins.
These products are sometimes sold at premium price points despite being illegal, the report noted.
Retail dynamics are also shifting
Interestingly, while prices for consumers have increased, retailer margins have remained unchanged, according to the report. At the same time, companies have pulled back on trade schemes such as discounts and incentives that were earlier offered to retailers. These schemes are expected to return gradually once the market stabilises.
This means the pricing pressure is being felt more by consumers than absorbed within the distribution chain.
What this means for consumers
The JM Financial report stated that in the near-term, consumers are likely to continue adjusting within the category rather than reducing consumption significantly. The report also mentioned that if the price increases keep happening, it has the possibility to affect the buying behaviour in India.