ITC was officially announced on Monday (July 24) that ITC would be demerging its hotel business, putting an end to the speculations surrounding the matter. However, this news triggered a sharp decline in ITC’s share price, with the stock falling by 3.87% to close at ₹470.90. During the intraday session, the stock had reached a new 52-week high of ₹499.60.

The company disclosed in a regulatory filing that the board had granted its in-principle approval for the demerger of the hotels business under a scheme of arrangement. The demerged entity will have ITC holding a 40% stake, while the remaining 60% shareholding will be directly held by the company’s shareholders, proportionate to their current shareholding in ITC.

Market experts had been speculating on ITC restructuring its businesses, including the possibility of demerging its FMCG and IT services business, adding to the anticipation surrounding the announcement.

While the demerger news was not entirely unexpected, several factors contributed to the stock’s decline. One of the main reasons could be the belief that the partial value unlocking after the demerger might not be significant. With ITC retaining a 40% stake in the demerged entity, investors may have perceived limited immediate value creation.

According to Deepak Jasani, Head of Retail Research at HDFC Securities, the somber market sentiment, sell-on-news action by traders, and the partial value unlocking due to ITC retaining a significant stake were factors that dampened positive returns for the stock following the long-awaited demerger announcement.

On the other hand, Shrey Jain, Founder and CEO of SAS Online, considered the decline of 4-5% in ITC’s stock as profit booking, given that the move was widely anticipated. He mentioned that the demerger would unlock value for ITC’s shareholders by creating a separate, listed entity for the hotel business, which could be seen as a positive development for the Indian hospitality industry.

Despite the temporary decline in the stock price, ITC has performed well this year, emerging as one of the top-performing stocks in the Sensex index. It has gained 39% in the last one year, outpacing the 10% gain of the equity benchmark Sensex.