A whisker away from occupying the coveted slot of the fourth-largest hub of equities by beating Hong Kong, India is being recognised as a stock market superpower. And now investors are waiting for Dalal Street to produce its first $1 trillion stock.
Calculations done by domestic broking firm ICICI Securities, which is based on the assumption, that the ratio of the largest stock’s market capitalisation (m-cap) to aggregate m-cap sustaining at a long-term average of 5-6% and no re-rating in P/E ratios from current levels, shows that the $1 trillion milestone could be achieved by 2032.
HDFC Bank is the most likely stock to achieve the goal with a hurdle rate of 25.5% against its historical profit growth trajectory of 20%.
Also read | RIL shares rally 8% in 1 week. Is the sleeping giant waking up?
Mukesh Ambani’s Reliance Industries, which is currently India’s largest-listed company with a market value nearing the Rs 19 lakh crore mark, could make it if its profit growth trajectory jumps up to 21%, while Bajaj Finance will need to maintain its past growth rate of 35%-40% over the next decade to reach $1 trillion m-cap mark, the brokerage said.
To hit the milestone, Bajaj Finance mcap needs to grow at a CAGR of 41.4% till 2032, RIL 20.7% and HDFC Bank 25.5%.
“Our probable list of stocks that could potentially hit the USD 1trn mark by 2032 is based on their hurdle rate (% CAGR in m-cap required going ahead), which should be in close proximity to their past long-term profit CAGR track record,” said Vinod Karki of ICICI Securities, adding that the $1 trillion feat will herald deepening of Indian markets and significantly improve large free floats available for investors.
Also read | Nifty@22,000: Is the bull market aging like fine wine?
Based on the historical average number of companies with m-cap greater than a-tenth of the top company’s mcap, it is likely that 30-40 stocks with a $100 billion size may exist in 2032.
At present, there are only six stocks internationally that command $1 trillion market cap – Microsoft, Apple, Saudi Aramco, Alphabet, Amazon and Nvidia. Valued at about $2.9 trillion, Microsoft is the world’s most valued listed company.
In 2001, the largest Indian stock’s m-cap stood at $10 billion before scaling up to touch $100 billion by 2007 under the influence of a bull market driven by a notable lift in the corporate profit cycle – expressed in terms of an all-time high PAT/GDP ratio of 7%.
“Consequently, the m-cap to GDP ratio hit an all-time high of ~160%. Surprisingly, the peak P/E ratio of the market, although high, was not outlandish at ~21x in 2007, thereby showcasing the illusory nature of point-in-time P/E ratios and the fundamental groundings of CAPE ratio (cyclically adjusted P/E ratio). CAPE during 2007 peak stood at an outlandish 35x as compared to a point in time forward P/E of 20x,” Karki said.
(You can now subscribe to our ETMarkets WhatsApp channel)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
