ITC Shares Stage Strong Intraday Rally: Stock Climbs Back Above ₹409 on NSE

In a display of resilience during the morning trading session on April 3rd, ITC Ltd (NSE: ITC), the diversified conglomerate with interests spanning FMCG, cigarettes, hotels, paperboards, and agri-business, recovered smartly from early lows to trade firmly in positive territory.

Market data captured around 11:09 AM IST showed the shares of the Kolkata-headquartered giant trading at ₹409.80 on the National Stock Exchange (NSE). This reflected a modest gain of ₹0.75 over the previous day’s closing price, translating into a +0.18% increase for the session thus far. The chart axis indicated that ITC had ended the prior trading day at ₹409.05.

While the net gain appeared marginal at this point, the intraday journey depicted on the TradingView chart was considerably more dynamic. ITC opened the session on a weaker note, dipping below the ₹408 level and potentially testing lows near ₹407 in the initial minutes of trading. However, beginning around 9:45 AM, strong buying momentum emerged, reversing the early losses. The stock embarked on a steady and convincing upward climb, breaching its previous closing level and continuing to rally strongly. It reached an intraday peak near the ₹410 mark around 10:45 AM before experiencing a minor pullback to settle near ₹409.80 at the time of the snapshot. This robust recovery from the morning lows into positive territory highlighted significant buying interest emerging in the counter.

ITC Ltd: A Diversified Indian Conglomerate

ITC Ltd is one of India’s foremost private sector companies with a unique, diversified business portfolio that touches various aspects of the Indian economy:

• FMCG – Cigarettes: The historical backbone of the company and a significant contributor to profits. ITC holds a dominant market share in the Indian cigarette market with brands like Gold Flake, Classic, Navy Cut, and Flake. This segment is highly regulated and subject to significant taxation.

• FMCG – Others: This segment represents ITC’s ambitious diversification drive and includes a wide array of products:

  • Foods: Brands like Aashirvaad (atta, staples), Sunfeast (biscuits, snacks), Bingo! (snacks), YiPPee! (instant noodles), B Natural (juices), Candyman (confectionery), Fabelle (luxury chocolates), Kitchens of India (ready-to-eat).

  • Personal Care: Brands like Fiama, Vivel, Savlon, Engage.

  • Stationery: Classmate notebooks and stationery products.

  • Matches & Agarbattis: Ship and Mangaldeep brands.

• Hotels: Operates a chain of luxury hotels under brands like ITC Hotels, Welcomhotel, Storii, Mementos, and Fortune. This business is currently undergoing a demerger process.

• Paperboards, Paper & Packaging: A leading player in the paper and packaging industry, catering to various sectors and focusing on sustainable solutions.

• Agri-Business: One of India’s largest agri-business players, involved in sourcing, processing, and exporting various agricultural commodities. It leverages its e-Choupal network and focuses on building integrated value chains.

• Information Technology: Operates through its subsidiary, ITC Infotech, providing IT services and solutions globally.

This diversified structure provides resilience but also presents challenges in terms of capital allocation and market valuation (often leading to discussions about a “conglomerate discount”).

Analyzing the Intraday Rally: Potential Factors at Play

The strong recovery witnessed in ITC shares after the initial dip could be driven by several potential factors:

1. Defensive Buying & Sector Sentiment: In potentially volatile market conditions, investors often gravitate towards stocks perceived as ‘defensive’, such as those in the FMCG sector. ITC, with its significant FMCG presence and history of stable earnings (largely from cigarettes) and dividend payouts, often attracts such flows. Positive sentiment towards the broader FMCG pack could be lifting ITC.

2. Technical Support and Reversal: The stock finding buying support near the ₹407 level and subsequently rallying strongly above its previous close (₹409.05) constitutes a positive technical development. This breach likely attracted momentum buyers and potentially triggered stop-losses for short positions.

3. Valuation Attractiveness Post-Correction: As indicated by the longer-term performance data (negative 6-month and YTD returns), ITC stock has faced significant pressure recently. The morning dip might have pushed the stock to levels where investors perceive better value, prompting buying interest.

4. News Flow (Demerger, FMCG Outlook): Specific news or anticipation related to ITC could be playing a role. Updates on the progress of the hotel business demerger (expected to unlock value), positive commentary on FMCG demand outlook (especially rural recovery), or stability in the regulatory environment for cigarettes could boost sentiment.

5. Institutional Activity: ITC is widely held by institutional investors (both domestic and foreign). Significant buying activity from these large players, perhaps seeing long-term value after the correction, can drive such intraday rallies. The overhang from British American Tobacco’s (BAT) recent stake sale might be gradually reducing, allowing fundamental buyers to step in.

6. Broader Market Recovery: If the benchmark indices (Sensex, Nifty 50) also recovered from their morning lows, it would create a more favourable backdrop for individual stocks like ITC to rally.

Longer-Term Performance: Contrasting Narratives

The performance data across different time horizons reveals a complex picture for ITC:

• Short-Term (1 day: +0.18%, 5 days: +0.44%, 1 month: +3.64%): Suggests stabilization and a modest recovery trend in the very recent past, aligning with the positive intraday move.

• Medium-Term (6 months: -14.87%, YTD: -10.67%): Clearly indicates significant underperformance and selling pressure over the last half-year and since the beginning of 2024. This period likely saw concerns related to overall market volatility, potential slowdown in consumption, and the technical overhang from the BAT stake reduction.

• Longer-Term (1 year: +1.91%, 5 years: +158.57%, All time: +4,810%): The 1-year return is nearly flat, suggesting the recent declines have largely offset earlier gains within that period. However, the 5-year and All-time returns are very strong, reflecting ITC’s ability to generate substantial long-term shareholder value despite periods of consolidation or underperformance, driven largely by the cash flows from the cigarette business funding diversification and dividends.

This data portrays a stock attempting to recover from a significant medium-term correction but backed by a solid long-term performance history.

Key Considerations for ITC Investors

Investing in ITC often involves weighing several unique factors:

• Conglomerate Structure: The debate around whether the diversified structure creates synergies or results in a valuation discount compared to pure-play peers in each segment (FMCG, Hotels, etc.). The hotel demerger is seen as a step towards addressing this.

• ESG Concerns: The significant contribution of the cigarette business raises Environmental, Social, and Governance (ESG) concerns for some institutional investors, potentially limiting its valuation multiple.

• FMCG Growth & Margins: The market closely tracks the growth trajectory and, crucially, the margin profile of the non-cigarette FMCG business, viewing it as the key future growth engine.

• Capital Allocation: How the company allocates the substantial cash generated from cigarettes towards growing other businesses versus returning capital to shareholders (dividends, buybacks) is a key strategic consideration.

• Regulatory Risks: The cigarette business remains vulnerable to increases in excise duties and other regulations.

• Dividend Yield: ITC has historically been known for its attractive dividend yield, making it popular among income-seeking investors.

Looking Ahead in the Trading Session

As the trading day progresses on April 3rd, market participants watching ITC will focus on:

• Sustaining Gains: Can the stock hold above the previous close level (₹409.05) and consolidate near the morning highs?

• Testing Resistance: Will it attempt to break decisively above the intraday high near ₹410? This level could act as immediate resistance.

• Volume Analysis: Observing trading volumes during the rally and any subsequent consolidation is important. High volume on the up-move suggests strong participation.

• Relative Strength: Comparing ITC’s performance to the Nifty 50 and the Nifty FMCG index. Will it continue to show relative strength?

• News Flow: Any updates related to the demerger, FMCG sector trends, or broader market news could influence the stock’s direction.

ITC’s strong recovery from morning lows on April 3rd signals renewed buying interest after a period of significant underperformance. Its ability to sustain these gains and potentially challenge higher levels will depend on continued buying support and the overall market environment throughout the remainder of the session.

(Disclaimer: This article is based on stock market data observed around 11:09 AM IST on April 3rd, 2024, and general market analysis principles. It is intended for informational purposes only and does not constitute financial or investment advice. Investing in the stock market involves risks, including the potential loss of principal. Always conduct your own thorough research or consult with a qualified financial advisor before making any investment decisions.)