ITC shows positive momentum: Should investors consider buying?

India's FMCG giant ITC has been performing well, supported by strong performance across various sectors.

Experts suggest the stock is poised for further gains due to its solid fundamentals and favourable conditions, such as surplus rains expected to boost rural demand.

In the past six months, ITC's share price has surged by 25%, outperforming the market compared to the BSE Sensex's 11.6% rise.

However, year-to-date, the stock has lagged behind the benchmark index, with a share price growth of 9% compared to the BSE Sensex's rally of 14%.

Shares of ITC hit a record high on Tuesday amid broader market volatility, and the company's current market capitalisation stands at Rs 6.37 lakh crore.

Q1 Earnings and Long-Term Growth Outlook

Several brokerages have recommended a buy on ITC stock following the company’s Q1 earnings, including Jefferies and Nuvama, which have set the highest target price at Rs 585, representing more than a 14% upside from Thursday's trading price.

ITC reported a less than 1% year-on-year (Y-o-Y) drop in consolidated net profit for Q1, totalling Rs 5,091.59 crore, down from Rs 5,104.93 crore in the same period last year.

Despite this, analysts remain optimistic about the company’s long-term growth outlook and favourable conditions.

Analysts at Axis Securities believe ITC's long-term prospects are strong. Most business segments, excluding Paper, are on track, with stable cigarette volumes driven by differentiated and premium offerings.

The demerger of the hotel business is also expected to strengthen ITC's balance sheet.

The brokerage firm, which has a 'buy' rating on the stock with a target price of Rs 550 per share added,

ITC received shareholders' approval in June for the demerger of its hotels business into ITC Hotels; however, it has yet to be listed separately.

Deven Choksey Research has an 'accumulate' rating on the stock with a price target of Rs 545. The firm said,

"ITC stock has seen a slow and gradual increase over the past couple of weeks. Prices have traded above the 40 DEMA support, and momentum remains positive. Traders can buy with a target of Rs 527-536 in the next 3-4 weeks," Ruchit Jain, Lead Research at 5paisa.com, told the Economic Times on Wednesday.

Source: TradingView

Macroeconomic Tailwinds

India's weather department reports that the country received surplus rains in August and forecasts above-average rainfall in September.

This bodes well for rural demand, which typically relies on a good monsoon, and could help keep raw material prices stable for FMCG companies.

Additionally, the Indian hospitality industry is poised for a strong Q2, following a relatively soft Q1. This is expected to be driven by increasing average room rates and improved occupancy, according to analysts at Motilal Oswal.

They predict key hospitality players will see revenue per available room growth of approximately 9-11% YoY in Q2.

Analysts expect the sector to bounce back, driven by pent-up demand, improved convention centre bookings, a stronger wedding season, and favourable demand-supply dynamics.

Most players are accelerating their execution plans and rapidly expanding their inventories to benefit from the anticipated upcycle in the industry, experts say.