ITC Shares Surge After Budget Announcement

On Tuesday, shares of ITC soared by over 5% following Finance Minister Nirmala Sitharaman‘s budget address, which did not propose any changes to tobacco taxation. This news was music to the ears of businesses like ITC, which heavily depend on cigarette sales for their revenue. The tobacco duty rates remained steady after a significant hike of 16% in the National Calamity Contingent Duty last year.

The stock saw an impressive performance on major indices like the Nifty 50 and Sensex. Opening at ₹467.05 on the BSE, ITC shares touched an intraday high of ₹489.80, while hitting a low of ₹466.55. Meanwhile, the Nifty FMCG index saw a gain of 2.7%, with ITC leading the way.

Ruchit Jain from 5paisa noted that the recent upward movement in ITC’s share price, combined with healthy trading volumes, is a positive indicator. He mentioned that the stock has immediate support around the ₹460 mark. Jain believes that the overall trend for the FMCG sector is optimistic, as companies in this space have been experiencing good price-volume activities.

Furthermore, ITC stands to benefit from a potential revival in rural demand, which could enhance its non-tobacco businesses, such as FMCG and agriculture. In the budget, the Finance Minister boosted rural allocations by 12%, signaling positive prospects for industries catering to rural markets.

T Manish, a Research Analyst at SAMCO Securities, pointed out the benefits of revised tax rates and an increased standard deduction for FMCG firms. The Finance Minister also announced higher tax rates under the New Tax Regime, lifting the standard deduction amount from ₹50,000 to ₹75,000 for individuals opting for this regime. This change may lead to net tax savings of around ₹17,500 for individuals, directly benefiting companies like ITC, HUL, Dabur, and Nestle.

In an exciting development, ITC’s stock climbed above ₹500 on Wednesday, reaching a record high of ₹510.60. This increase marks a remarkable 10% gain over just two days, even as the broader market remains subdued.

ITC has experienced a significant surge of 20% in July alone, bouncing back impressively by 27% from its previous low of ₹403 in June. Reports indicate that Jefferies India has upgraded ITC to a ‘Buy’ rating, raising its target price to ₹585 per share, mainly due to the unchanged tobacco tax, which allows ITC to focus on volume with minimal price hikes.

Jefferies also pointed out that GST taxes are expected to remain stable until March 2026 as the central government settles state dues, further encouraging growth in ITC’s core businesses.

Analysts from Macquarie have also initiated coverage on ITC with an ‘Outperform’ rating and a target price of ₹535. They predict above-average growth for ITC’s key cigarette segment because of its strong market share and focus on innovation.

In addition, Nuvama Institutional Equities highlighted ITC’s efforts to combat illicit trade and solidify its market position, citing innovations across its product portfolio. The introduction of differentiated cigarette variants has contributed to stronger performance lately, showing ITC’s ability to adapt to market demands.

As the July market progression continues, all eyes will be on ITC as it prepares to report its financial results for the quarter ending June 30, 2024, in a board meeting scheduled for August 1, 2024.