After a 5% rally in 2 days, ITC earns a downgrade. Here's why

After a 5% rally in 2 days amid the election outcome nervousness, FMCG stock ITC has now earned a downgrade to ‘add’ from domestic brokerage firm Emkay Global with a target price of Rs 460 as they see some near-term business pressures on the company.

“We have been positive on ITC due to its better execution and macros supporting its diversified businesses. However, amid the near-term business pressures like cigarette margin stress, demand in paper business & margin weakness, and the slowdown in agri, we have recently downgraded ITC to ADD,” said Emkay Global in its report.

For the cigarette business, they see margin pressure after two back-to-back inflationary leaf crop season (last year’s floods in the domestic market drove a surge while this year it is due to global supply pressures), leading to 60 bps YoY likely compression in margin for FY25, which is likely to recover in FY26 (on hopes of a better crop season).


Additionally, the brokerage firm believes that the pressure is likely to exist from the surge in competition, and expectations of higher tax hike in the Union Budget (to fund populist measures).

Also read: TDP-linked stocks soar up to 32% in 2 days after strong election performance

Out of 34 analysts, 31 recommend buying the ITC stock while 2 advise to hold and 1 recommends selling the same, as per Trendlyne data.

Recently, the shares of ITC have yielded overall negative returns for the investors as in the last one year, the stock has dipped by nearly 2% while in the current calendar year, it has declined by 7%.

The shares of ITC were trading flat on BSE at Rs 433.80 around 12 pm today.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)