ITC regains swagger as it re-enters Club Elite of Indian stocks

MUMBAI: In June this year, shares of ITC were left out of an elite club of Indian stocks that signified the worsening decline of the scrip as it saw the ongoing bull market move past it. After a 13-year stint in the list of top 10 highest weighted stocks of the benchmark Nifty50 index, ITC found itself no longer part of that Club Elite.

At the time, the rather unimportant milestone seemed to portray the larger problem with the company. Unable to convince investors of its growth story or the potential of its future growth, shares of ITC had been rudderless in the first eight months of 2021.

However, thanks to a surprising rally in September, which saw the stock soar 12 per cent, the scrip managed to creep back into the list. At the end of September, ITC’s weight in the benchmark index was at 2.7 per cent, which was enough to mark its re-entry into the elite club.

While no one could for certain pin down a particular reason for the September surge, investors were largely relieved the stock has finally started participating in the broader market rally. Expectations that cigarette volumes were recovering with the reopening of the economy and that management is refocusing itself on better capital allocation were seen as part reasons for the 12 per cent rise.

The gains in the stock were also helped by a rare technical breakout in early September, which fuelled further buying. However, this time retail investors weren’t the driving force behind the breakout.

Mutual funds were the biggest buyers of the stock in the September quarter. Of the 121 million shares mutual funds bought in the September quarter, half of them were bought in September alone.

ITC stock’s move this month has shown that September’s rally was not a mere aberration amidst the mediocrity of returns seen in the past year. Another 11 per cent gain in October so far has meant that the stock’s weight in the Nifty50 has further improved to 2.9 per cent ensuring that it will remain in the list for some time.

With speculation rife that the company may enter a partnership with Amazon for its e-chaupal network, analysts are seeing first signs of a change in strategy from the management and baby steps towards unlocking value in ITC’s subsidiaries.

“Current leadership of ITC has been taking a lot of feedback from Investors on ESG, and transparency (quarterly PPT format and disclosures on tech business),” said an analyst for a city-based broking firm.

For ITC investors, especially its 2.5 million retail investors, this resurgence appears to have future.