ITC bull pares stake by selling 1.4 crore shares. Time for you to book profits post record rally?

NEW DELHI: The recent record-breaking rally in ITC made an old bull book profits in the stock of the cigarette-to-hotel major. Parag Parikh Flexi Cap Fund (PPFAS) sold 1.42 crore shares of ITC in July but still holds over 6 crore shares of the company.

Earlier in June, PPFAS' largest bet was on ITC as it comprised 9.18 per cent of its total assets under management (AUM). The figure has now been trimmed to 7.48 per cent in July. ITC is now the third largest holding after HDFC and Bajaj Holdings, shows latest disclosures made by the mutual fund scheme, whose portfolio is widely tracked by long-term value investors.

Having rallied over 42 per cent year-to-date, ITC has been among the top performing Nifty stocks. During the market rally in 2020 and 2021, ITC was among one of the most underperforming stocks and was ridiculed by memes on social media.

Shrugging off all concerns related to ESG as well as diversification strategy, PPFAS fund manager Rajeev Thakkar started picking ITC in March 2020 at around Rs 140.

“We were buyers in ITC Ltd. and bulk of the purchases were made between a price of Rs 140 and Rs 210. While the stock continues to be reasonably valued, the attractiveness has obviously reduced a bit given the doubling of the stock price from the lows,” Thakkar said.

He booked some profit off the table as the portfolio weightage was threatening to breach 10 per cent of the portfolio. “When a position breaches the 10% limit on account of price appreciation, it is termed as a passive breach and one has about a one month’s time period to bring the weightage down below 10%,” the money manager said, adding that it is not prudent to have a very large position in a single stock.

The popular mutual fund a, which has assets under management worth over Rs 22,000 crore, is based on the principles of value investing. The fund is known to pick stocks with low debt, high cash flows and those quoting at a discount to their intrinsic value.

While the highest price target for ITC goes up to Rs 377, according to Trendlyne data, the average estimate of Rs 340.3 shows an upside potential of around 9 per cent from current prices.

Out of the 32 analysts with coverage on ITC, none have a sell rating with 21 analysts calling it a strong buy.

Earlier in the month, the Kolkata-based FMCG major reported a 38.35 per cent year-on-year (YoY) jump in standalone net profit at Rs 4,169.38 crore for the June quarter and managed to beat analyst estimate. Q1 revenue climbed 41.36 per cent YoY to Rs 18,320.16 crore.

Domestic brokerage ICICI Securities has cited four factors that will benefit ITC: expectation of value to outperform growth basket, potential price hikes in cigarettes in the current inflationary environment, good underlying performance in the FMCG business, and improving outlook (cyclical upturn) for the hotels business.

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