What explains this big perk up in playing catch up with the rest of the market? Is there something that we do not know about?
At this point, it seems to be clearly a catchup trade because from a valuation perspective, ITC was trading at a very cheap valuation compared to where the market is. So, a valuation catch up trade was expected which I think is playing out now.
Having said that, the other aspects which are working for ITC include the economy reopening and things moving along the core operating performance. It is very likely to improve from Q2 onwards. Whether it is the cigarettes business or the other FMCG business or also hotels business, going ahead we are likely to see a marked improvement. It makes a lot of sense to add ITC at these levels. That is what the market is playing for.
There is also an opinion in the market that perhaps the anti ESG trade is reversing. What is your opinion?
That aspect is something which is very difficult to gauge right now because the ESG mandate is a very large one. It is a structural theme. I do not think that it is going to reverse very quickly. It is something which is likely to play out in the future also. In the short term, there could be something.
But having said that, I do not think that is a key factor which is driving ITC. The stock was really cheap, there is no doubt about that. There was very little to lose and more importantly, a lot to gain, considering things are opening up and numbers are going to be better and growth is going to be back. It is more likely that the market is playing for that now.
We are trying to figure out why there was no trigger as such on Thursday?
On Wednesday, the utility stocks started moving up. NPTC and even Coal India moved up and today ITC did. That suggests that there might be some anti ESG trade which is playing out but I feel it is a sector rotation theme which happens in the market and right now, ITC is a cheap stock. It’s difficult to say when things will move. It should have happened sooner but has come now.
What news should the market watch out for, especially when you look at the last AGM? News on value unlocking perhaps?
Value investing is a long term theme. If the company were to demerge its cigarette business versus the FMCG business, a lot of value can get created. Apart from that, hotels can also be unlocked. If there is a good time to unlock the hotels business, that time is now considering that the next two years can be very strong for the hotels business. Also, I think the important factor will still be the cigarettes business and the profit growth in that business.
That business has been sluggish for years together because of taxation This year, taxation has not increased and so probably we could see improvement in the profitability in the cigarettes business in the forthcoming quarters. That is going to be a very critical factor for the stock to perform.
