BackWhy ITC shares are sliding today — explained
ITC share price has plunged today after the news of govt forming a committee to finalise tobacco policy, say experts
PremiumITC share price today slumped around 5 per cent after the news break of Government of India forming committee for finalising taxation policy for tobacco. The stock hit an intraday low of ₹248.70 on the NSE in early deals. However, market experts are of the opinion that one should look at this dip on the stock as a buying opportunity.
Speaking on the reason for ITC share price dip, Ravi Singhal, Vice Chairman at GCL Securities said that ITC shares are nosediving today after the news of GoI forming a committee to finalise tobacco policy. But, "it is good news for tobacco companies as a tobacco policy will nullify any chances of regular tax hike in union budget year on year. After the tobacco policy, tobacco companies will be aware about the taxes getting imposed on them, which is not the case these days. So, it is a good opportunity for stock market investors to buy on this dip," Singhal advised.
Sreeram Ramdas, Analyst at Green Portfolio said, "India is looking to further its compliance with the R component of W.H.O.'s MPOWER plan which stands for Raising taxes for Tobacco. A major chunk of ITC's cash flows come from their tobacco business, but something to keep in mind is that the cigarette business is very sticky, elasticity is low, and tobacco companies are able to pass on the cost to the consumer very easily. In fact, in most cases they are able to round up the increased cost in their price which leads to a slightly improved margin."
ITC stock that has been upbeat for the last one month after breaking out of its long term channel price of 200-220 to rise 20 per cent in a month took a plunge in early trade today, falling 5 per cent. This fall can be attributed to multiple factors.
"First, while analysts expect FMCG Q2 earnings to be robust, margins might be under pressure, and some believe that the Q2 earnings for ITC might take a slight dip YOY. Also, the Union Ministry for Health and Family Welfare has set up an expert panel to review the taxation policy for tobacco products. Tobacco being the primary business for ITC, a higher tobacco tax would hit the sales and bottom line for ITC, and this might be spooking the markets against it," said Sonam Srivastava, Founder at Wright Research.
Advising buy on dips strategy for stock market investors, Singhal of GCL Securities said that one can buy the counter at current levels for 6 to 9 month target of ₹320 maintaining stop loss at ₹227 per share level.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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