ITC Ltd. Upgraded to Hold by MarketsMOJO Amid Mixed Financial and Technical Signals

Quality Assessment: Strong Fundamentals Amidst Flat Quarterly Performance

ITC’s quality metrics remain robust despite a flat financial performance in the fourth quarter of FY25-26. The company continues to demonstrate strong long-term fundamentals, highlighted by an average Return on Equity (ROE) of 28.29%, signalling efficient capital utilisation and profitability. This ROE figure is particularly impressive within the FMCG sector, underscoring ITC’s ability to generate returns well above the cost of equity.

Net sales have grown at a healthy compound annual growth rate (CAGR) of 9.55%, reflecting steady demand across its diversified product portfolio. Additionally, ITC maintains a net-debt-free balance sheet, a significant strength that provides financial flexibility and reduces risk in volatile market conditions.

However, recent quarterly results show some softness. The latest six-month Profit After Tax (PAT) stood at ₹10,601.84 crores, marking a decline of 21.25%, while net sales for the quarter were at ₹17,824.68 crores, the lowest in recent periods. Cash and cash equivalents also dipped to ₹3,008.79 crores, the lowest half-year figure recorded. These factors temper the otherwise strong quality profile and suggest caution in near-term earnings momentum.

Valuation: Fair but Premium Compared to Peers

ITC’s valuation metrics present a mixed picture. The company trades at a Price to Book (P/B) ratio of 4.9, which is considered fair given its strong ROE of 28.8%. This valuation suggests that investors are willing to pay a premium for ITC’s quality and market position. However, this premium places the stock above the average historical valuations of its peers in the FMCG and tobacco industries.

Despite this, the stock’s dividend yield remains attractive at 5.1%, offering a steady income stream to shareholders. This yield is particularly notable in the current market environment where fixed income returns are subdued, making ITC a compelling option for income-focused investors.

On the downside, ITC’s stock price has underperformed significantly over the past year, delivering a negative return of 33.56%, compared to the BSE Sensex’s decline of 10.21% over the same period. This underperformance is compounded by a 10.8% fall in profits, raising questions about near-term earnings growth and valuation sustainability.

Financial Trend: Flat to Negative Growth with Institutional Confidence

Financially, ITC has experienced a flat to negative trend in recent quarters. The company’s latest quarterly results indicate stagnation in revenue and a contraction in profits, with PAT declining by over 21% in the last six months. This trend is reflected in the stock’s returns, which have lagged the benchmark indices consistently over the last three years.

Nevertheless, ITC benefits from strong institutional backing, with 84.02% of its shares held by institutional investors. This high level of institutional ownership suggests confidence in the company’s long-term prospects and governance, as these investors typically conduct rigorous fundamental analysis before committing capital.

Comparing returns over various periods, ITC has delivered mixed results: a 43.26% return over five years closely tracks the Sensex’s 41.46%, but over ten years, the stock’s 28.00% return pales in comparison to the Sensex’s 177.76%. This disparity highlights the challenges ITC faces in sustaining growth momentum over the long term.

Technicals: Shift from Bearish to Mildly Bearish Signals

The upgrade in ITC’s investment rating is largely driven by a positive shift in technical indicators. The technical trend has improved from bearish to mildly bearish, signalling a potential stabilisation in the stock’s price movement. Weekly MACD readings have turned mildly bullish, although monthly MACD remains bearish, indicating mixed momentum across timeframes.

Other technical indicators present a nuanced picture: weekly KST (Know Sure Thing) is mildly bullish, while monthly KST remains bearish. Bollinger Bands on the weekly chart show mild bearishness, with monthly bands confirming a bearish trend. Daily moving averages continue to signal bearishness, reflecting short-term price pressure.

Volume-based indicators such as On-Balance Volume (OBV) show no clear trend weekly but a mildly bullish signal monthly, suggesting some accumulation by investors over the longer term. Dow Theory analysis reveals no clear weekly trend but a mildly bearish stance monthly.

Price action supports these technical signals. ITC’s current price stands at ₹283.75, up 1.30% from the previous close of ₹280.10, with a 52-week low of ₹275.00 and a high of ₹428.50. The recent price recovery from the lows hints at a potential base formation, though the stock remains well below its yearly highs.

Comparative Performance and Outlook

ITC’s recent performance relative to the broader market and its sector peers has been disappointing. Over the last one year, the stock has declined by 33.56%, significantly underperforming the Sensex’s 10.21% fall. Over three years, the stock’s return of -31.58% contrasts sharply with the Sensex’s 18.14% gain, underscoring persistent challenges in regaining investor confidence.

Despite these setbacks, ITC’s large-cap status and diversified FMCG portfolio provide a degree of resilience. The company’s net-debt-free position and strong institutional ownership offer a solid foundation for recovery, while its attractive dividend yield continues to appeal to income investors.

Investors should weigh the company’s strong fundamental quality and fair valuation against the flat financial trends and mixed technical signals. The upgrade to Hold reflects this balanced view, suggesting that while ITC is no longer a sell, it may require further positive catalysts to move into a Buy rating.

Conclusion: A Balanced Upgrade Reflecting Mixed Signals

The upgrade of ITC Ltd.’s investment rating from Sell to Hold on 10 June 2026 is a reflection of evolving market and company-specific factors. Strong long-term fundamentals, including a high ROE, net-debt-free status, and healthy sales growth, underpin the quality assessment. Valuation remains fair but premium, supported by a robust dividend yield.

Financial trends show flat to negative growth in recent quarters, with profits and sales under pressure. However, high institutional ownership signals confidence in the company’s governance and prospects. Technically, the shift from bearish to mildly bearish trends, with some weekly indicators turning positive, supports a more cautious but optimistic stance.

Overall, ITC’s Hold rating suggests that investors should maintain positions but remain vigilant for further developments. The stock’s underperformance relative to benchmarks and peers warrants caution, while its fundamental strengths provide a foundation for potential recovery.

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