13 Mar , 2024 By : Debdeep Gupta
ITC shares surged 8% following BAT's 3.5% stake sale; the biggest intraday gain in 4 years, The stake sale could lead to a re-rating of ITC's stock, per experts and the increase in the free float will cause an upward adjustment in the weights on the index.
Diversified conglomerate ITC Ltd's stock jumped 8 percent in trade on March 13, following the 3.5 percent stake sale by its top shareholder British American Tobacco.
At 10.45 am, ITC stock was quoting Rs 429.65 on the NSE, higher by 6.23 percent.
In trade today, ITC shares jumped up to 8.3 percent. This is ITC's largest intraday jump since May 21, 2020, when ITC shares gained 8.32 percent. ITC's market cap has seen an increase of Rs 33,000 crore.
British American Tobacco (BAT) sold a 3.5 percent stake in ITC in a Rs 17,491-crore block deal on March 13. BAT, the largest ITC shareholder, sold around 43.7 crore shares, at an average price of Rs 400, which was at a 1 percent discount to the previous session’s closing price of Rs 404.45. The share sale has cut the holding of BAT to about 25.5 percent from 29 percent. BAT will have to wait for 180 days before paring its stake further.
The deal could potentially boost liquidity, by increasing free float. Additionally, with reduced BAT ownership, ITC's perceived corporate governance may improve, benefiting minority shareholders, noted experts.
"The stake sale could lead to a re-rating of ITC's stock, as investors view it as more independent. Long-term accumulation of ITC shares may be the next step, given its fundamentals," said Atul Parakh, CEO, Bigul.
He added that the stake sale could lead to a re-rating of the ITC stock, as investors view it as more independent. Long-term accumulation of ITC shares may be the next step, given its fundamentals. However, short-term should be mindful of volatility post-deal.
However, on the other hand, Nirav Karkera, Fisdom said that there is no change in ITC's fundamental picture and the positive view for the stock remains unchanged.
"Increase in free float will cause an upward adjustment in the weights on the index. For instance, the weight on the Nifty 50 can be expected to increase by ~23 bps," he added. While supply overhang seems largely out of the way, demand dynamics are expected to work in favor of the price.
Prabhudas Lilladher said that their long-term target on ITC is around Rs 465 to Rs 480, implying an upside of around 18 percent.
So far in 2024, ITC stock is lower by around 8 percent. In comparison, the frontline index, Nifty 50 has risen about 3 percent during the same period.
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