As foreign investors poured a record $18.5 billion into Indian stocks in the December quarter, rising valuations, India is expected to end the year with five companies valued at more than $5 trillion each.
This year, Hindustan Unilever Ltd and Infosys Ltd joined Reliance Industries Ltd, Tata Consultancy Services Ltd and HDFC Bank Ltd Ltd in the ~5 trillion market capitalization group.
Their shares have increased throughout the year in the range of 9-68 percent.
The Reliance Industries of billionaire Mukesh Ambani is the most valued company with a market valuation of about 12.64 trillion, followed by Tata Consultancy at about 10.91 trillion, HDFC Bank at about 7.69 trillion, Hindustan Unilever at about 5.63 trillion and Infosys at about 5.26 trillion.
After the nationwide lockdown was declared due to covid, Indian stocks plummeted more than 20 percent in March; they not only recovered the losses but also reached new highs in November and December.
For certain firms, the pandemic has created huge opportunities. For pharmaceutical and chemical firms, the technology sector, for offshoring and remotely operated industries, it has created tremendous opportunities,” said analysts at HDFC Securities.
There are at least three other companies which, if the market rally continues in 2021, are within striking distance of joining the exclusive club. They include Housing Development Finance Corp., a mortgage lender with a market cap of about 4.44 trillion, Kotak Mahindra Bank with a market capitalization of about 3.88 trillion, and ICICI Bank with a market value of about 3.54 trillion.
During the bull run, several relatively smaller firms have increased their market capitalization. For eg, Asian Paints’ market cap gained 48 percent to Rs. 2.54 trillion this year and is now closing in on the Rs. 2.56 trillion market size of cigarette maker ITC Ltd.
I would estimate that the increase in the market cap of Asian Paints is the most striking in the large-cap room. Asian Paints trades to earnings at FY22 price at 72 times, while ITC trades at 17 times. It is estimated that Asian Paints will see about 3,500 crore benefit, while ITC is likely to produce about 16,000 crores in FY22. Asian Paints is now trading with Hindustan Unilever and Page Industries at a premium, Motilal Oswal Financial Services Ltd brokerage said in a note to customers.
Some of the heavyweight public sector stocks such as NTPC Ltd and Oil and Natural Gas Corp. have also been helped by the increase in the equity markets to reclaim the Rs. 1 trillion market-cap marks.
“The rise in valuations, however, has made analysts cautious. “Valuations are no longer cheap. Our view of equities as an asset class, however, remains positive. India is possibly at the cusp of a new business cycle, which would mean strong growth in corporate earnings and more improvement in earnings estimates. Accordingly, as an asset class, we remain constructive on equities and look at every opportunity to buy, said Sharekhan.
Besides, good liquidity support for Indian stock markets is likely to occur. “Internally, most investors are still sitting on the fence or have recently created some cash in their portfolios,” it added.