Stuck with an investment in ITC? Here's how the stock looks on the charts

At ITC’s annual general meeting recently, Chairman Sanjiv Puri admitted that the focus on ESG (environmental, social and governance) investing had created headwinds for tobacco stocks globally. 

The stock of the company that projects itself as a diversified conglomerate with a portfolio of cigarettes, hotels, agri-commodities, paperboards and specialty paper, and fast moving consumer goods, has been a massive underperformer at the bourses thus far in calendar year 2020 (CY20). On year-to-date (YTD), basis, ITC has slipped nearly 24 per cent. In comparison, the Nifty FMCG index has gained 2 per cent, while the Nifty 50 has slipped 5.3 per cent during this period.

While the first quarter of the current fiscal (Q1FY21) was impacted by lockdown, analysts at Axis Securities say the sales momentum recorded in June has sustained in July and August with operations reaching pre-Covid-19 levels and distribution and supply chain also catching up faster than expected. 

“With competition plants closed for a large part in Q2 and innovative products offered in cigarette segment, we expect ITC to grow its volume share going ahead. Compelling valuations (15x FY22E EPS) with modest earnings growth visibility, over 5 per cent dividend yield to sustain, strong and cash rich balance sheet and likely market share gains in core cigarette business supported by inorganic acquisitions, which are key triggers for upsides in the stock,” they wrote in a September 2020 note.

Here’s how the stock looks on the technical parameters.

This counter has consistently failed to stay above the above 200-days moving average (DMA) despite repeated attempts, which has tested the patience of investors, who have resorted to short selling. As we can see on the daily chart, there is a negative crossover of 50-DMA with 200-DMA, signalling a “Death Cross”.  CLICK HERE FOR THE CHART
 
A Death Cross exhibits a negative sentiment with market participants expecting the price to show further correction in the sessions ahead. The stock is looking weak on the charts and one can expect selling to emerge again in the range of Rs 187 to Rs 190 levels. The 100-DMA is placed at Rs 185.50, which is also acting as another hurdle.

The Relative Strength Index (RSI) have also failed to make a positive crossover in the last 20 sessions, suggesting the negative trend to persist for a while. The Moving Average Convergence Divergence (MACD) has breached the zero line downward, which is clearly reflecting a downward direction with the possibility of correction from the current levels.

The overall trend predicts a slide towards Rs 170 and then Rs 155 levels, as per the daily and weekly charts. At the current juncture, the upside is capped at Rs 190 and the downside seems certain in the near term.