ITC hits new record high-gains 9% in 2 sessions; can investors play the consumption story now?

ITC shares in Wednesday’s trade (July 24) continued with their winning streak and marked their fresh record high of Rs 507.3 after Jefferies upgraded the stock to buy after the budget announcement. In two sessions, the stock has climbed a steep around 9 per cent.

The gains in the stock are primarily driven as the Union Budget has not tinkered with the taxation rate on tobacco. Global brokerage views no news as great news and has upgraded the counter to a buy and raised the target to Rs 585, implying probable gains of nearly 19 per cent from the previous close. 

The GST taxes are also likely to stay stable until Mar-26 until center settles state dues. Demand outlook for the staple sector is improving and this should benefit key businesses of ITC, added the brokerage. In view of the above, the global brokerage upgraded EPS by 1-2 per cent.

Equinomics Research revised its target priceagain to Rs.525/ and recommends a HOLD on the stock as monsoon performance has turned normal from a significant deficit. Normal rainfall ishighly positive development for ITC as this will boost rural demand for its products. Also, the company is looking to grow beyond macro recovery by implementing new initiatives and expanding its product portfolio. Cigarette
business has recovered well post Covid (now at 97-98 per cent of peak cigarette volume in FY2013). Steady macro and government initiatives (stable taxes, control over illegal cigarette, etc.) are expected to further help ITC to sustain volume growth.

Social sector reforms introduced in Budget 2024 to boost rural consumption: Should you play the consumption story now?

Independent market analyst - Ambareesh Baliga believes that sector rotation is happening - now with focus on farm and rural. Further he says that it is a beneficiary and hence we have seen a good move post-budget. On the outlook on the stock, he added that the stock can move up some more - had consolidated for a long time around 410/430 after the earlier move from 200 to 500.

Meanwhile, given the social sector measures in Budget 2024, Atul Parakh, CEO of Bigul believes the social sector measures in Union Budget could potentially boost rural demand, benefiting FMCG companies. Increased allocations for schemes like MGNREGA and agricultural support may improve disposable incomes. However, the consumption story remains mixed, with urban demand outpacing rural. 
Sectoral rotation is possible as investors reassess valuations post-budget. FMCG might see renewed interest, but it's crucial to be selective. Focus on companies with strong rural penetration and value positioning, he added.

Cautious optimism is warranted. Further, he advised investors and other stakeholders to monitor Q1FY25 results for concrete signs of demand recovery before making significant portfolio shift.

Narendra Solanki, Head Fundamental Research - Investment Services, Anand Rathi Shares and Stock Brokers added that the company has not yet released its results for Q1 FY25. In Q4 FY24, the company posted decent results, despite a subdued performance in its Agri and paperboard businesses. However, its cigarette, FMCG, and hotel segments continued to show growth momentum. The company will benefit from value unlocking from demerger of its Hotel business. A projected revival in rural demand is expected to benefit ITC's non-tobacco businesses, including FMCG and agriculture, added the analyst.

Due to the resilient nature of its core business in an uncertain industry environment and its 3-4 per cent dividend yield, ITC is a strong defensive option in the current volatile markets, suggest Solanki.