ITC Ltd: Navigating Challenges as a Nifty 50 Constituent Amid Institutional Shifts

Significance of Nifty 50 Membership

As one of the prominent constituents of the Nifty 50 index, ITC Ltd. holds a pivotal role in India’s benchmark equity gauge. Inclusion in this elite group not only reflects the company’s market capitalisation and liquidity but also ensures significant visibility among domestic and international investors. Index funds and ETFs tracking the Nifty 50 are compelled to maintain exposure to ITC, which typically supports the stock’s liquidity and trading volumes.

However, membership in the Nifty 50 also subjects ITC to heightened scrutiny and performance expectations. The company’s stock performance is often benchmarked against the broader index, and any sustained underperformance can lead to negative sentiment among institutional investors and fund managers. This dynamic is particularly relevant given ITC’s recent relative weakness compared to the Sensex.

Institutional Holding Changes and Market Sentiment

Recent data indicates a subtle but notable shift in institutional holdings of ITC Ltd. The company’s Mojo Score, a comprehensive metric assessing fundamentals, valuation, and technicals, currently stands at 48.0, categorised as a Sell. This represents a downgrade from a previous Hold rating on 09 Feb 2026, signalling deteriorating confidence among analysts and investors alike.

Institutional investors, including mutual funds and foreign portfolio investors, have been recalibrating their exposure amid the stock’s mixed signals. While ITC boasts a sizeable market capitalisation of ₹4,02,125.62 crores, its price-to-earnings (P/E) ratio of 16.65 lags slightly behind the FMCG industry average of 17.16, suggesting a valuation discount that may reflect concerns over growth prospects.

Moreover, the stock’s price action reveals a nuanced technical picture. ITC’s current price is above its 5-day moving average but remains below its 20-day, 50-day, 100-day, and 200-day moving averages. This indicates a short-term recovery attempt following two consecutive days of decline, yet the longer-term trend remains bearish. The stock’s high dividend yield of 4.04% offers some cushion for income-focused investors, but it has not been sufficient to offset broader negative sentiment.

Performance Analysis Relative to Benchmarks

ITC Ltd.’s stock performance over various time horizons paints a challenging picture. Over the past year, the stock has declined by 23.30%, starkly contrasting with the Sensex’s 10.67% gain. This underperformance extends across shorter and longer periods: a 1-month loss of 4.79% versus a 1.02% gain for the Sensex, and a 3-month decline of 21.11% compared to a modest 0.67% rise in the benchmark.

Year-to-date, ITC has fallen 20.36%, while the Sensex has dipped only 0.92%. Even over a three-year span, ITC’s negative 8.62% return contrasts sharply with the Sensex’s robust 39.14% gain. Although the stock has delivered a 49.84% return over five years, this still trails the Sensex’s 63.85% appreciation. The decade-long performance gap is even more pronounced, with ITC’s 70.39% gain falling well short of the Sensex’s 267.87% surge.

This persistent lag highlights structural challenges within ITC’s business segments, particularly in the cigarettes and tobacco sector, where 57 stocks have reported results recently: 17 positive, 26 flat, and 14 negative. ITC’s mixed results and cautious outlook have weighed on investor sentiment, despite its defensive sector positioning.

Impact of Benchmark Status on Investor Behaviour

Being part of the Nifty 50 index means ITC is a mandatory holding for many passive funds and index trackers, which can provide a floor to the stock price during market volatility. However, active fund managers and institutional investors are increasingly scrutinising the stock’s fundamentals and growth prospects, leading to a divergence in holding patterns.

The downgrade to a Sell rating by MarketsMOJO, accompanied by a Mojo Grade of 48.0, reflects a deteriorating quality score and a cautious stance on the stock’s near-term outlook. This rating change on 09 Feb 2026 signals that analysts expect further challenges ahead, possibly stemming from regulatory pressures on the tobacco business, slower growth in FMCG segments, or competitive headwinds.

Institutional investors may reduce their weightings in ITC in favour of higher-growth or better-valued peers, which could amplify downward pressure on the stock. Conversely, the company’s large market cap and dividend yield continue to attract income-focused investors seeking stability amid market turbulence.

Outlook and Strategic Considerations for Investors

Investors considering ITC Ltd. must weigh the company’s defensive qualities against its recent performance challenges. The stock’s high dividend yield of 4.04% remains attractive in a low-yield environment, offering a steady income stream. However, the subdued price momentum and negative rating downgrade suggest caution.

From a valuation standpoint, ITC’s P/E ratio of 16.65 is marginally below the FMCG sector average of 17.16, indicating a slight discount but not a compelling bargain given the growth concerns. The stock’s technical indicators reveal a tentative short-term recovery, yet the longer-term moving averages imply persistent downward pressure.

Given ITC’s integral role in the Nifty 50, any significant changes in its performance or institutional holdings could have broader implications for index composition and sector representation. Investors should monitor quarterly results, regulatory developments in the tobacco industry, and shifts in institutional ownership closely.

For those seeking portfolio optimisation, exploring alternatives with stronger momentum, superior fundamentals, or more favourable valuations may be prudent. The evolving market landscape demands a dynamic approach to stock selection, balancing income needs with growth potential and risk management.

Conclusion

ITC Ltd.’s status as a Nifty 50 constituent underscores its importance in India’s equity markets, yet the company faces headwinds that have led to a downgrade in analyst sentiment and underperformance relative to the benchmark. Institutional investors are recalibrating their positions amid mixed financial results and cautious outlooks, while the stock’s technical and valuation metrics signal ongoing challenges.

While the company’s large market cap and attractive dividend yield provide some support, investors should remain vigilant and consider alternative opportunities that may offer better risk-adjusted returns. The interplay between ITC’s benchmark membership and evolving market dynamics will continue to shape its trajectory in the months ahead.

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