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 favours 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 digitalisation, 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 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 most valued firm with mcap of $213 billion.
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