Why is ITC Stock Falling? – April 2020
Why is ITC Stock Falling? ITC Ltd share price is falling since Government is seeking to offload its entire 7.94% stake in ITC Ltd and also might increase taxes on tobacco products just like on they did for Alcohol.
- The company has seen its share price decline more than 30% since the beginning of the year. The stock fell by almost 32% since January 1, 2020.
- After seeing the bottom of Rs.135 in March-2020, ITC share price rose up to Rs.190 as on April 15, 2020.
- But, the stock tumbled again by almost 15% from Rs.190 to Rs.161 on May 7, 2020.
- Why ITC Ltd Share Price has been falling since last 3-4 sessions?
Why is ITC Ltd Stock Falling?
Government is Selling its Entire 7.94% Stake in ITC Ltd
- The Union government is looking to raise Rs.22,000 Cr by selling its entire stake in ITC Ltd and Axis Bank Ltd.
- The government holds stake in these companies through Specified Undertaking of the Unit Trust of India (SUUTI). Thus, SUUTI owns around 7.94% stake in ITC as on March 31, 2020.
- Thus, Government is seeking to raise around to Rs.16,000 Cr by selling its entire stake of 7.94% in ITC Ltd.
- According to the report, the government is looking to complete the transaction by the end of the first or second week of May.
- Various mutual funds and LIC are expected to participate in the proposed share sale of ITC and Axis Bank. The proposed transaction is expected at a marginal discount of 2-3% to underlying trading price on the transaction date.
Governments’s Divestment Target of Rs.2.1 Lakh Cr for FY21
- This move would be a part of the central government’s plan to raise Rs.2.1 Lakh Cr through divestment in state-run companies. In Union Budget for FY2021, the Government set an ambitious Disinvestment Target of Rs.2.1 Lakh Cr for FY21.
- Government has already sold its entire stake in L&T Ltd.
- LIC IPO
- Also, the Government expects to raise around Rs.90,000 Cr to Rs.1 Lakh Cr through LIC IPO.
- The partial stake sale in LIC and its subsequent initial public offer would be the crucial part of the Government’s ambitious target of Rs.2.1 Lakh Cr.
- Without issuing LIC IPO, it would be almost impossible to meet the set divestment target for FY21.
- Stake Sale in IDBI Bank
- Government currently Holds 47.11% Stake in IDBI Bank. Thus, an equity sale is planned for IDBI Bank also.
- Other Divestment Options in Pipeline
- Expected Stake Sale in Air India, BPCL, Container Corp. of India, Shipping Corp. of India
Other Key Reasons for ITC Stock Fall
- This share sale by the Government could only be a temporary overhang. While, the bigger concerns for ITC are :
- Changes in the Tax Structure : Hike in Excise Duty on Cigarettes – Effective Tax Rise of 10-13% (Announced in Budget 2020)
- The market is worried that the tax-starved government might go after tobacco products, after training their guns on liquor
- Business uncertainty due to the COVID-19 pandemic
- Concerns of labour unavailability at ITC factories due to nationwide lockdown