ITC said on Monday it would spin off the hotel business, separating it from its cigarettes and food units, but retain a 40% stake in the entity, with ITC shareholders holding the rest.

The company’s stock ended nearly 4% lower on Monday in its biggest one day-drop since Sept. 26, 2022, and the move a volte-face from earlier this month when the stock hit record highs on reports of a likely spinoff.

“We believe some investors may have preferred a vertical split (100% direct),” Jefferies analysts said in a note, pointing to the cash-guzzling nature of the hotel business.

The business has contributed less than 5% to ITC’s revenue and earnings before interest and taxes (EBIT) over the last decade but for over 20% of capital expenditure, Jefferies said.

ITC has over 120 hotels and 11,600 keys across more than 70 locations and competes with Tata Group’s Indian Hotels Co (IHTL.NS), which owns properties including the Taj and Marriott.

Other analysts said they would look for more details on the rationale for the new corporate structure at a management call scheduled for Thursday. The final approval for the spin-off is scheduled to be voted on at a board meeting in mid-August.

“We seek clarity on the rationale behind retaining a 40% stake, the royalty structure, any tax implications and the key criteria for gaining a strategic investor/partner in the business,” said Emkay Research.

Nomura analysts said the “not a clean de-merger” could restrict value unlocking.

ITC’s largest revenue contributor is its consumer goods business, led by cigarettes. The Goldflake brand cigarette maker will report its quarterly results next week.

The Nifty 50 (.NSEI) index was up 0.07% to 19,684.85, while the S&P BSE Sensex (.BSESN) gained 0.02% to 66,403.50, as of 10:14 a.m. IST.

Eleven of the 13 major sectoral indexes logged gains, with the metals index (.NIFTYMET) rising 1.7% and the auto index (.NIFTYAUTO) adding 0.9%.

The rise in metals stocks comes after China, the world’s largest producer and consumer of metals, announced plans to provide further support to support its post-COVID economic recovery. JSW Steel (JSTL.NS) and Hindalco (HALC.NS) were among the top Nifty 50 gainers.

Asian markets advanced on hopes of further stimulus measures from China, with the MSCI Asia ex-Japan index (.MIAPJ0000PUS) gaining 1.5%.

Auto stocks rose, led by TVS Motor Company(TVSM.NS) on reporting a bigger-than-expected rise in quarterly profit, aided by strong two-wheeler demand.

Index heavyweight ITC (ITC.NS) lost as much as 3.26% and was the top Nifty 50 loser. The company’s board gave in-principle approval to demerge its hotels business into a new entity on Monday. ITC will own a 40% stake, while shareholders will hold the remaining.

“We believe some investors may have preferred a vertical split (100% direct),” Jefferies said in a note.

The stock has lost 6.5% so far this week. The company will host an analyst/investor call on July 27 to discuss further details on the proposed demerger.

“Believe that the gains in the market will be capped in the near-term given elevated valuations and soft start to June-quarter earnings season,” said Pankaj Chhaochharia and Abhimanyu Godara of Antique Stock Broking.

Analysts also expected caution to prevail in markets ahead of the Federal Reserve’s policy meeting on Wednesday.