ITC shares touched a two-month low of Rs 331.90 on the BSE on Friday, down 2% intraday Friday, adding to the 4% decline in the stock market over the past two sessions.

Diversified fast-moving consumer goods (FMCG) stocks were trading at their lowest levels since October 17, 2022. The ITC is now down 8% from its all-time high of Rs 361.90 hit on November 11, 2022, due to losses over the past two days. The stock has underperformed and held steady over the past three months, while the S&P BSE Sensex gained 4.3%.

ITC is India’s second-largest cigarette and FMCG company, with about 78% market share in cigarettes and staple food, biscuits, noodles, snacks, chocolate, dairy and personal care products. The company is also involved in paperboard, printing and packaging, agriculture and hospitality.

On Thursday, Reliance Consumer Products, the FMCG arm and wholly-owned subsidiary of Reliance Retail Ventures, announced the launch of its FMCG brand ‘Independence’ in Gujarat, covering staple food, processed food, beverages and other daily essentials. Its product portfolio includes categories such as edible oils, pulses, grains, packaged foods, and other daily-needed products.

According to ICICI Securities, Reliance Consumer’s foray into FMCG through its own brands could threaten existing FMCG players in the food space, such as Tata Consumer and ITC. The brokerage pointed out that although it is challenging to build a brand and distribution network in a short period, the entry of Reliance Industries may squeeze the company’s profit margins, resulting in shrinking premium valuation multiples.

ITC’s FMCG business has been growing consistently, with margins improving over the past five years. The vast opportunity size of the existing food (Atta, Biscuits, Juice, Noodles, Snacks, Chocolate and Dairy) portfolio will help grow the business faster than other FMCG companies.

The stable cigarette tax is expected to maintain the current volume run rate. The company gained cigarette market share last year through new premium products and trade promotions, an ICICI Securities analyst said in a results update.

ITC’s hotel business has more than 70% occupancy and an average room rate (ARR) above pre-pandemic levels. The brokerage believes it will continue to grow at a faster pace in the near term, given pent-up demand.

In its second-quarter results update, Sharekhan said government action to curb illicit cigarettes would help ITC maintain volume growth momentum in its cigarette business as price increases are not expected in the near term.

The brokerage said that solid growth in the non-cigarette FMCG business, recovery in the hotel business, and continued strong growth in the PPP business would drive double-digit growth in revenue and PAT over the next two years. “Strong earnings visibility from improving growth prospects in the core cigarette business and margin expansion in the non-cigarette FMCG segment, combined with high cash generation and strong dividend payouts, should narrow the valuation gap over the next few years,” it added.