ITC, which has been bearing the brunt of analyst downgrades, increased cess post introduction of Goods and Services Tax (GST) and a petition seeking direction to the government and insurance companies to divest their stake in the cigarette-maker, was among the favourite stocks for mutual funds (MFs) in June.
According to data from U.S.-based investment research firm Morningstar, ITC was the seventh most purchased stock by MFs in June with fund houses buying ITC shares worth almost ₹537 crore with the total value of holding at ₹16,593 crore, which also made it the sixth most-held entity among large-cap stocks.
Interestingly, ITC shares have gained nearly 21% in the current calendar year. This is slightly better than the 20.01% return of the benchmark Sensex in 2017. ITC touched its all-time high of ₹323.65 on June 30. On Wednesday, ITC gained 2.42% to close at ₹291.50. The stock fell 15% during intra-day trade on Tuesday as the GST Council decided to increase the cess on cigarettes.
The development led to ICICI Direct, among many brokerages, revising its rating on ITC from buy to hold while reducing the target price from ₹407 to ₹317 attributing the revision to the increased cess on cigarettes that will rise the tax burden on the company while negatively impacting volume growth in the segment.
“We believe the change will increase the indirect tax incidence on the company by 22% with the effective estimated price hike coming to 12% to pass on the entire burden,” the report said. The volume growth estimate has been cut from 5% earlier to 1% for FY’18.
Credit Suisse, CLSA and Morgan Stanley are among the foreign brokerages which downgraded ITC after the hike in cess.
ITC was in the news recently after anti-tobacco activists filed a petition in the Bombay High Court seeking a direction to the government and public sector entities to divest their holdings in the firm. Insurance firms hold 22.48% in ITC with LIC accounting for 16.29%. Specified Undertaking of the UTI holds 9.09%.
