Market Update 24 Nov. 2020 – ITC back in action after lean period

Covid test mandatory for travellers to Maharashtra

The Maharashtra government has made a Covid-negative report mandatory, from 25 November, for passengers arriving from 4 states—Gujarat, Rajasthan, Goa and Delhi-NCR. It is applicable to passengers traveling by air, train and road. If other states follow suit, it could have an impact especially on the aviation and hotels stocks, which have seen a run-up recently on the back easing restrictions and vaccine optimism. Travel-related stocks showed mixed reactions today. While Indigo (-0.5%), Spicejet (-0.3%), and Chalet Hotels (-1.7%) declined, Indian Hotels (+1.5%) advanced. 

Auto stocks gain amid mixed demand cues

The data on domestic sales volumes for October released by key auto majors were extremely encouraging, with Maruti (+18% YoY) and Hero Moto (+35% YoY) reporting strong growth. However, demand at the dealer end may be slower. As per media reports, dealers have indicated that retail auto sales grew in low single digits during this festive season. This could be a challenge particularly in the two-wheeler segment, where registrations are lower as compared to the last year. The data for November volumes, which will be released next week, will give a clearer picture on the demand scenario. Meanwhile, shares of auto companies were on the roll today, with Maruti (+2.1%), M&M (+3.0%) and Eicher (+3.5%) seeing strong gains. 

ITC back in action after lean period

Between April and October this year, shares of ITC (-3.8%) significantly underperformed the Nifty50 index (+35.4%). However, investor interest seems to be back in the FMCG major, which has jumped 18% in this month (versus 12% gain in the Nifty50). The jump in ITC’s share price is backed by higher volumes, indicating strength in the rally. Reopening of restaurants, cinema halls, suburban transportation, etc. are positively impacting mobility and creating an uptick in demand for discretionary and out-of-home categories. In Q2, ITC saw its highest ever quarterly sales for its FMCG business (mainly staples, noodles, and snacks) and growth of ~18% YoY (excluding the lifestyle retail and stationery businesses). Similarly, in the cigarettes business, net revenues bounced back 33% sequentially as restrictions eased. The stock gained 2.5% today.