Focus shifts to ITC shares after BAT sells a stake. Is the upside greater

The recent stake sale by British American Tobacco (BAT) in ITC has brought the spotlight back on the conglomerate's shares, with analysts expressing optimism about its potential for further gains in the near term.

Before the sale, BAT was the largest shareholder in ITC. The divestment has removed some uncertainties surrounding ITC's stock, which had been underperforming recently, according to analysts.

Following the news, ITC shares surged by 9 percent on Wednesday to Rs 438, closing at Rs 422.40. As of 1.30 pm today, ITC shares were up 0.5 percent to Rs 424.25 on the Bombay Stock Exchange (BSE).

BAT sold approximately 3.5 percent of its stake in ITC through open market transactions, totaling around Rs 17,485 crore. Despite the reduction, BAT has expressed its intention to maintain ownership above 25 percent.

Despite ITC's shares declining by over 10 percent since the beginning of the year, while the overall market has seen a slight increase, analysts see potential for further gains soon. They believe ITC's stock could reach Rs 460-480 in a few months, with immediate resistance at Rs 440. As long as the stock remains above Rs 390, analysts suggest buying on dips.

Although ITC had been struggling lately after reaching an all-time high of Rs 499.70 in July 2023, brokerage firms have upgraded their rating to 'buy', citing the removal of uncertainties due to BAT's stake sale. They anticipate ITC's stock to perform well in the volatile market.

Morgan Stanley, for instance, is bullish on ITC, citing factors such as moderate cigarette taxes, growth in non-cigarette businesses, and reasonable valuations. It has set a target price of Rs 491. HSBC and Goldman Sachs have also upgraded ITC to 'buy', with target prices of Rs 480 each.

Out of 37 brokerages tracking ITC, 34 have given it a 'buy' rating, with an average target price of Rs 503, representing a potential upside of about 19 percent.

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