ITC to cross Rs 500 mark, may see more gains in next few sessions

ITC shares tested a lifetime high of ₹493.7 on Thursday before closing as the best performer on the Nifty with nearly 3% gains at ₹491.50. The conglomerate also became the seventh Indian company to cross a market capitalisation of ₹6 lakh crore.

Apart from its flagship cigarettes business, ITC also has a presence in hotels, paper products and fast-moving consumer goods. Market buzz that the company is likely to signal the timing of the de-merger of its hotel business at its annual general meeting on August 11, along with the strength in the broader market, drove the gains in the shares, analysts said.

The benchmark Nifty 50 rose 0.7% on Thursday to end at a lifetime high of 19,979.15 points, higher by 146.00 points. Of this, a 30-point contribution came from shares of ITC.

“Earnings from the cigarettes business was going into the capex for hotels. Now that the capex is done, and the (hotels) business is doing extremely well even compared to pre-Covid levels, so it is a good time to demerge,” said Amit Kumar Gupta, the founder and chief investment advisor at Fintrekk Capital.

ITC, which in 2021 was at the receiving end on social media because of the sideways moves in the share price for a prolonged period, has emerged as an outperformer in the past 15 months. The stock has gained almost 130% since February 25, 2022 as against the Nifty’s gains of 20% in this period.

While this has driven the valuations of the company to multi-year highs of around 30 times its one-year forward earnings, analysts advice investors must be judicious while buying the shares at current levels.”We would see some consolidation in the stock, but our advice would be to accumulate and buy on dips,” said Nirvi Ashar, fundamental analyst at Religare Broking. “Whoever is holding can accumulate because demerger is on cards, and that can add value for investors,” she said.

On technical charts, the shares are seen rising to around ₹550 over a two-to-three-week period, said Atul Chaturvedi, analyst at Antique Stock Broking.

The relative strength index or RSI, an indicator used in technical analysis for ITC is currently around 79, which indicates that the stock is an “overbought” zone, but Chaturvedi said that this should not be a concern, and that the stock is likely to continue with its positive momentum in the near-term.

Gains in the shares, though, are seen capped after the near-term buoyancy, particularly as the broader market could also see some consolidation after the recent sharp gains.

“Demergers don’t happen overnight, and could take up to 12 months for approvals to come, so even if there is an announcement (in the AGM), there will be a 10-15% upside, after which we could see some consolidation in ITC,” Gupta of Fintrekk Capital said.