ITC Ltd: Navigating Challenges Amidst Nifty 50 Membership and Institutional Shifts

Significance of Nifty 50 Membership

Being part of the Nifty 50 index confers considerable visibility and liquidity advantages to ITC Ltd. The index membership ensures that the stock is a key component in numerous passive investment funds and exchange-traded funds (ETFs), which track the benchmark. This status typically supports a baseline demand for the stock, cushioning it against extreme volatility. However, ITC’s recent performance indicates that index inclusion alone is insufficient to offset fundamental challenges.

Over the past year, ITC has declined by 21.01%, starkly contrasting with the Sensex’s 10.47% gain over the same period. This divergence highlights the stock’s struggle to keep pace with broader market momentum, raising questions about its sectoral and company-specific headwinds.

Institutional Holding Dynamics and Market Sentiment

Institutional investors have been recalibrating their exposure to ITC amid mixed signals from the company’s financials and sector outlook. The downgrade in the Mojo Grade to 'Sell' on 9 February 2026, from a previous 'Hold', underscores a deteriorating sentiment. The Mojo Score of 48.0 further reflects a cautious stance, signalling that the stock currently lacks the momentum and quality metrics favoured by discerning investors.

ITC’s price movement today was largely inline with the FMCG sector, registering a marginal increase of 0.06%, slightly below the Sensex’s 0.16% rise. Notably, the stock has reversed a three-day losing streak, yet it remains below all key moving averages — 5-day, 20-day, 50-day, 100-day, and 200-day — indicating persistent downward pressure and a lack of short- to medium-term technical support.

Financial Metrics and Sectoral Context

ITC’s price-to-earnings (P/E) ratio stands at 16.56, marginally below the FMCG industry average of 17.01, suggesting that the stock is trading at a slight discount relative to its peers. However, this valuation advantage has not translated into positive price performance, as reflected in the stock’s negative returns over multiple time horizons.

Examining the cigarette and tobacco sector, where ITC is a dominant player, reveals a mixed earnings season. Out of 106 stocks that have declared results, only 28 reported positive outcomes, while 52 remained flat and 26 posted negative results. This uneven sectoral performance adds to the uncertainty surrounding ITC’s near-term growth trajectory.

Comparative Performance Analysis

ITC’s relative underperformance is evident across various time frames. Over the last week, the stock declined by 1.83%, compared to a modest 0.10% drop in the Sensex. The one-month and three-month performances also lag, with ITC down 1.13% and 20.50% respectively, while the Sensex gained 1.07% and declined only 3.74% over the same periods.

Year-to-date, ITC has fallen 20.65%, significantly underperforming the Sensex’s 3.30% decline. Even over longer horizons, the stock trails the benchmark: a three-year return of -12.16% versus Sensex’s 38.59%, and a ten-year return of 74.27% against the Sensex’s 255.92%. These figures highlight the challenges ITC faces in delivering sustained shareholder value relative to the broader market.

Technical and Trend Considerations

From a technical perspective, ITC’s position below all major moving averages signals a bearish trend. The recent reversal after three consecutive days of decline may offer a short-term respite, but the absence of upward momentum across key technical indicators suggests that investors should remain cautious. The stock’s inability to breach resistance levels could deter fresh buying interest, especially from momentum-driven funds.

Implications for Investors and Market Outlook

For investors, ITC’s current profile presents a complex risk-reward scenario. While its large-cap status and Nifty 50 membership provide a degree of stability and liquidity, the stock’s fundamental and technical weaknesses warrant caution. The downgrade to a 'Sell' Mojo Grade reflects concerns about earnings growth, sectoral headwinds, and valuation pressures.

Institutional investors may continue to reassess their allocations, especially given the availability of more attractive opportunities within FMCG and other sectors. The stock’s underperformance relative to the Sensex and its peers suggests that portfolio managers might favour alternatives with stronger growth prospects and technical momentum.

Looking ahead, ITC’s ability to regain investor confidence will depend on its strategic initiatives, earnings recovery, and broader sectoral trends. Tobacco regulation, shifting consumer preferences, and competitive pressures remain key challenges that could influence the stock’s trajectory.

Conclusion

ITC Ltd.’s position as a Nifty 50 constituent underscores its importance in the Indian equity landscape, yet recent performance and institutional sentiment highlight significant hurdles. The stock’s downgrade to a 'Sell' rating, coupled with its lagging returns and technical weaknesses, suggests that investors should carefully evaluate their exposure. While index inclusion offers some support, fundamental and sectoral factors will ultimately dictate ITC’s market fortunes in the near to medium term.

Only Rs. 9,999 - Get MojoOne for 1 Year + 3 Months FREE (60% Off) Start Today