ITC’s 8% upswing delights market; biggest intraday jump since May 2020

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ITC share price on Thursday gained as much as eight percent in early deals, marking their biggest intraday jump since May 2020. To investors’ delight, the stock even hit a seven-month high at Rs 233.30.

Although the shares were still 4.5 percent away from their 52-week high of Rs 239.15, today’s upmove was enough to excite the investors. Many in the market termed the stock’s exuberance as ‘a Diwali move’ considering the stock’s otherwise dull performance in the past few months.

ITC’s move excites the Street more than others because the retail portfolios make bumper returns. In the past few years, the share of retail shareholders in the fast-moving consumer goods company has risen tremendously.

“Technically, the stock has given a breakout after seven months of consolidation,” Kkunal Parar, Vice President Research at Choice Broking.

Year to Date (YTD), ITC’s scrip has risen merely 10 percent as compared to Nifty FMCG that has rallied 20 percent while Sensex surged 23.5 percent YTD.

Also Read | More appetite for ready-to-cook food

Technical View

ITC has given a breakout from its resistance of 220. Post this breakout, the call writers ran to cover their positions and fresh long formations were seen as well. This led to a sharp upmove in the stock, said Ruchit Jain, senior analyst – technical and derivatives at Angel Broking.

The trend for the stock is positive and now the earlier resistance range of 220-216 is expected to become support on declines. On the higher side, the next resistance is seen around 240, Jain added.

Also Read | ITC to invest $2 billion in medium term to ramp up capacity

Fundamental View

Rumours that prices of smuggled cigarettes have increased could be a major positive for ITC, an analyst at a domestic brokerage firm said.

Along with the cigarette business contributing the most, around 39 percent, to ITC’s overall revenues, the profitability in the cigarette segment is the highest, she added.

There has been a steady improvement in the cigarette business from mid-June with most markets returning to normalcy and the recovery has been faster than the first wave. Management has also shown agility and has been focusing on expanding cigarette presence in grocery which may add to the medium-term potential, Jefferies had highlighted in a report released towards the end of July.

Also Read |  ITC AGM: Actively pursuing inorganic opportunities in FMCG business, says CMD Sanjiv Puri

Meanwhile, CLSA Asia Pacific Markets said last week that it believes ITC’s fast-moving consumer goods business is firmly on the path for a profitable scale-up with multiple value creation opportunities.

Falling capital expenditure, the asset-light model for its hotel business and a sharp increase in its dividend payout should progressively address investor concern over capital allocation, CLSA said.

“Its valuation is compelling with a record-high PE discount to the FMCG average (57%) and a 6% dividend yield,” CLSA said in the note.

Other cigarette stocks

The grapevine that prices of smuggled cigarettes have risen, led to hopes of market share gain for other cigarette players too.

Apart from ITC, the enthusiasm was also seen in stocks such as Golden Tobacco, VST Industries, Godfrey Phillips India and NTC Industries that gained 5-8 percent on Thursday.

On Thursday, shares of ITC Ltd ended up nearly 7 percent at Rs 230.75 apiece on the BSE.

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