The Centre holds stake in ITC and Axis Bank through the so-called Specified Undertaking of the Unit Trust of India (SUUTI). The value of SUUTI stake in ITC is around Rs 16,000 crore, while that in Axis is Rs 5,200 crore.
The government intends to fully divest these stakes, along with that held under SUUTI in several smaller companies. In 2016, the Centre had appointed investment bankers to advice and conduct the share sales.
Some analysts said that while the share sale could only be a temporary overhang, the bigger concerns for ITC are changes in the tax structure and business uncertainty due to the Covid-19 pandemic.
“The market is worried that the tax-starved government might go after tobacco products, after training their guns on liquor,” said an analyst. “Also, there are concerns of labour unavailability at ITC factories,” he added.
Shares of ITC have lagged their consumer goods peers this year.
“The volumes have been declining for the cigarette business and the FMCG business is not that profitable. Once they increase their FMCG business, it will contribute handsomely to the top line,” said Sofat.
Given the underperformance, shares of ITC are attractive on several parameters such as price-to-earnings and dividend yield, said analysts.