16 Jan , 2024 By : Debdeep Gupta
Brokerage ICICI Securities bets big on HDFC Bank, Reliance Industries Ltd, and Bajaj Finance Ltd as it expects one out of these three to be India's first stock with a market value of $1 trillion by 2032.
ICICI Securities favors HDFC Bank with a 25.5 percent hurdle rate and 20 percent historical profit growth, anticipating a valuation re-rating. RIL needs a 21 percent long-term profit growth, while Bajaj Finance must sustain a 35-40 percent growth to reach the $ 1 trillion market cap, assuming no P/E re-rating.
ICICI Securities projects a $1-trillion market cap for the stock by 2032, with assumptions of a sustained largest stock’s mcap to aggregate mcap ratio of 5.8 percent, a PAT to GDP ratio of 7 percent, and real GDP growth progressing from 7 percent in FY24 to the previous cycle’s peak of 9 percent.
No market valuation expansion is assumed, but a faster-than-GDP corporate profit expansion could lead to Mcap/GDP reaching 160 percent without P/E expansion. GDP growth is expected to be driven by capex, re-leveraging, discretionary consumption, and productivity gains from significant strides in digitalization, it said.
The largest stock’s mcap was $10 billion in 2001, soaring to $100 billion by 2007 amid a bullish market driven by a substantial rise in the corporate profit cycle, reflected in a record PAT-GDP ratio of 7 percent. This led to an all-time high mcap to GDP ratio of 160 percent.
Despite a high peak P/E ratio of 21x in 2007, it wasn't excessively high, highlighting the deceptive nature of point-in-time P/E ratios and the foundational significance of the CAPE ratio (cyclically adjusted P/E ratio). The CAPE during the 2007 peak was an extraordinary 35x compared to a point-in-time forward P/E of 20x, the report added.
There are only six firms with $1 trillion market cap. Microsoft leads the pack with $2.9 trillion mcap, followed by Apple at $2.87 trillion and Saudi Aramco at $2.1 trillion. In India, RIL is the most valued firm with mcap of $213 billion.
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