India's First Stock With Market Value Of $1 Trillion By 2032; These 3 Companies Are Top Contenders, Says ICICI Securities

Brokerage house ICICI Securities has said that India’s first USD 1trn mcap stock could emerge by 2032 driven by peak ‘PAT/GDP’ ratio.

New Delhi: India is expected to get its first company with market value of USD by 2032, Brokerage house ICICI Securities has said.

"Our calculations suggest that India’s first USD 1trn market cap (mcap) stock could emerge by 2032. The macro framework is based on the assumption of reaching peak corporate profitability (~7% ‘PAT/GDP’ ratio) in the listed space driven by gradual advancement towards peak GDP growth of ~9%. Other key assumptions include – ratio of the largest stock’s mcap to aggregate mcap sustaining at long-term average of 5-6% and no re-rating in P/E ratios from current levels. Micro-level verification is done by screening stocks that have exhibited historical PAT growths in the vicinity of the hurdle rate required to reach a USD 1trn mcap by 2032, assuming no P/E re-rating," ICICI Securities said in its report. 

The Brokerage house said that HDFC Bank is the most likely stock with a hurdle rate of ~25.5%. RIL 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 USD 1 trillion m-cap.

"HDFC Bank’s hurdle rate of ~25.5% against its historical profit growth trajectory of ~20% makes the stock a prime contender with scope for valuation re-rating. RIL could make it if its longerterm profit growth trajectory jumps to ~21%. Bajaj Finance will need to maintain its past growth rate of ~35%-40% over the next decade to reach the USD 1trn mcap mark, assuming no P/E re-rating," said ICICI Securities.

The brokerage firm said that USD 1 trillion stock will herald deepening of Indian markets and significantly improve large free floats available for investors.

The largest stock’s mcap stood at USD 10bn in 2001 before scaling up to reach USD 100bn 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 mcap to GDP ratio hit the 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). The CAPE during 2007 peak stood at an outlandish 35x as compared to a point in time forward P/E of 20x, the report added.