ITC shares surge 9% as share sale overhang ease. Key details

Shares of ITC climbed 9 per cent in Wednesday's trade as huge quantity of its shares changed hands in a block deal, whose seller is believed to be the London-based shareholder British American Tobacco (BAT). The stock rallied as the overhang over ITC's share sales eased.

The stock rose 8.59 per cent to hit a high of Rs 439 on NSE. A total of Rs 17,569.61 crore worth shares changed hands on BSE so far. The price range for the proposed sale of shares was said to be Rs 384-400.25 apiece, which was a 5 per cent discount to the prevailing market price at the lower end of the price band. As per CNBC TV-18, BAT sold the entire 3.5 percent stake sale in the block deal window at an average price of Rs 400.40 per share. The block deal data is updated on stock exchanges post market hours. 

"We remain constructive on the company from a medium to long term perspective owing to its strong brand recall and enormous runway for its FMCG business ahead. With inflation expected to moderate further ahead, especially the rural side, we expect volumes in the overall business to come back as we move forward. At the current valuation, we believe that most of the negatives are already priced in and investors could start considering adding the stock to their portfolio at every dip," said Manish Chowdhury, Head of Research, StoxBox.

Abhilash Pagaria of Nuvama Institutional Equities said the move would lead to $105 million inflows into domestic indices. He expects Expect a $65 million inflow, equal to 13 million shares, with a 0.9-day volume  impact. For Sensex, as per Nuvama Alternative math,  $38 million worth inflows are likely, which is 7.7 million shares, with a 0.5-day volume impact.

As Global index providers (MSCI and FTSE) are already utilising 24 per cent as the float, which represents the maximum foreign ownership limit, Nuvama Alternative does not anticipate any weight increase in global passive indices. 

BAT had in February suggested that it was actively working to cut its roughly 29 per cent stake in the FMCG major ITC, which has interests in segments ranging from hotels to consumer packaged goods.
                
The stake sale would allow the maker of Dunhill and Lucky Strike cigarettes to pay down its debt and move faster towards the leverage range at which it could resume share buybacks. Also recently companies such as Whirlpool and Hyundai announced monetisation of their stakes in Indian companies. 

BAT had in its preliminary quarterly results for the December quarter suggested that it would keep pursuing all opportunities to enhance balance sheet flexibility and, as part of this, it regularly reviewed its stake in ITC. "We recognise that we have a significant shareholding which offers us the opportunity to release and reallocate some capital," BAT said.