Done financial courses, read finance-based books, learnt fundamental analysis and after lot of hardships brought some shares with great hopes. But those shares remain consolidated indefinitely at particular levels. On the other hand, your friend who brought some shares with some random tips from somewhere has made good profits in no time.
Frustrated thinking about the same? Wondering whatever you have studied has gone waste? Pondering why quality shares like ITC don’t grow? Not anymore. We have got you covered.

ITC Limited is a company based in Kolkata, West Bengal, India. ITC is active in a variety of industries, including cigarettes, fast moving consumer goods, hotels, packaging, paperboards and specialty papers, and agribusiness. There are 13 businesses in total, divided into five segments, in the company. It also exports its products to 90 different countries and the products are sold in over 6 million retail outlets worldwide.

Answering the questions pondering over your mind every now and then regarding the non-growth of ITC shares, one of the major factor was its complex structure. Many a times the structure of a company makes its valuation difficult. 

Valuating HDFC Bank is restricted to only banking and finance sector and has a limited market cap. But on the other hand, ITC is spread to agro, stationary, FMCG, food, tobacco and hospitality. Each sector is valuated in different manner based on consumer sentiments and have different competitors in each market. This makes it difficult to figure out the values of different verticals. 

Market is often confused regarding the growth of these companies, then comes the demand and supply mismatch. A share price depends on its demand and supply in the market. High supply of shares with large equity and market float increases its liquidity. A marginal increase in the price of ITC share (with a strong resistance around 210-220) provokes its existing shareholders, who have been constantly eyeing for some growth, to sell their holdings which increases the supply and in-turn effects the price negatively due to high volume change. This doesn’t allow creation of momentum and rally of price. But a fundamentally strong company always tends to grow in the long run. 

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This was followed by regular dividend pay-outs (Dividend ya Dokha). A high dividend yield on its face value by ITC has always attracted investors towards it. In order to pay dividends a company often takes loans but suffers due to high interest payments on that. Secondly, dividend is paid out of net profit. Dividend pay-outs to the shareholder reduces the net valuation and market capitalisation of the company and thus reduces its share price. On the other hand, if the company wouldn’t have paid that dividend, it would have automatically increased the price of the share by the same value and enhanced chances of growth prospects.

On top of it, ITC’s addiction to cigarettes is a major prospect. Past and present of a company could be very bright but there might be some upcoming regulatory and government rules that might force the market to think, which can effect the business model of the firm. Since ITC is majorly dependent on Tobacco industry for its larger portion of revenue, therefore it is often affected by the uncertainty this sector faces. Increasing taxes on cigarettes year after year shows that volume of its demand hasn’t increased much. Thus, market hesitates to increase the price frequently. 

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Fundamentals of a company give a view about the past and present state and the share market values a company according to how it will perform in the future. ITC is backed by strong financials which gives a pleasant valuation to the brand. But rise in individual competitors in different sectors in which it operates has seeded some uncertainty in the minds of large investors, thus stagnating the price. How a company would perform in the coming years in the eyes of shareholders has a major effect on the price movement of share.
 
Hence, investors with a shorter time horizon should avoid the firm due to unpredictability of cash flow timings for these segments. This is a firm that will most likely deliver in the medium to long term. The greatest approach to invest in ITC, in my opinion, is to analyse each quarterly result. Growth in hotels and the FMCG-others category are two crucial measures to keep an eye on.