BT 500: MARKET CAP
2005: A Market-cap Odyssey
Erstwhile PSUs, MNCs, and dot.coms could change the face of the future BT-500
By Roshni Jayakar
Circa 2005. The 14th BT-500 is just out and the top 10 list, predictably, is studded with the glitterati of Corporate India. Wait a minute, did you say India? Then what the devil is General Electric doing out there? And Intel? Or for that matter, Microsoft? And, just how did Air India nudge its way into the top 10 list of India's most valuable companies? And all these never-heard-of-before dot.coms? Will someone tell us what's going on?
Well, to start with, we're doing some serious crystal-ball gazing right now, starting with one simple question. Five years from now, who's going to be on the top of the heap in the market capitalisation sweepstakes? Tough question, that one. The fact that the Indian corporate sector is going through rapid change doesn't make it any easier. Take our current top 10 honours list. Back in 1992, when the first BT-500 was drawn up, seven of them were nowhere near the top 10 spots. In fact, they weren't even in the top 50. What's more, at least four of them - HCL, Infosys, Zee Telefilms, and Satyam Computers-weren't even listed.
Four of the 10 companies in this year's BT-500 are hard-core infotech companies; in the honours list of 1992, there were none. And, although three of those who made it to the rarefied list in 1992-Hindustan Lever, Reliance Industries, and ITC - are still around, several erstwhile heavyweights have been relegated to much lower ranks today. So, what's it going to be five years from now? Will today's stalwarts be replaced by another set of new favourites?
It may be tempting to say 'yes'. Because of the number of debutantes that seem to be waiting in the wings, raring to go and grab their places in the sun. Take the rash of dot.coms that are likely to seek listing in the coming months. Will a few dot.coms take the top 10 by storm in 2005? Maybe not. The only dot.com that is listed on Dalal Street-skumars.com-is currently quoting at its 52-week low. While that is certainly not enough basis for generalisation, consider this: the paid-up equity of dot.coms (typically Rs 4-6 lakh) is much lower than other companies. For such firms to make it to the top 10 (why, even the top 100) would mean stock market valuations that are stratospheric. After all, in the US, just two dot.coms-Yahoo and AOL - have found a place in BusinessWeek's Global 1000. For the record, Yahoo ranks 53 among the US firms and is No. 82 on the global list.
The Techie Challenge
So, you could safely rule out a dot.com blitz in 2005. But watch out for infotech and telecom companies. Take a quick look at the global trends to see why. BusinessWeek's global 1000 has three infotech companies on its top 10 list (yes, Microsoft is still one of them) and another three telecom companies. And, four of top 10 in the BT-500 this year are infotech companies. Get the drift?
If you haven't, here's what the pundits predict. Says Dileep Madgavkar, chief investment officer, Prudential ICICI Asset Management: ''Infotech and telecom stocks or stocks that deal with intellectual capital, are likely to dominate the market over the next three-to-five years.'' If that's true, what could be the weightage of infotech stocks-currently 26 per cent of BSE 200's $170-billion (Rs 7,75,880 crore) market cap-in 2005? Back of the envelope calculations, assuming a 20 per cent annual return from the market, and a 40 per cent growth in the infotech sector, suggest that the infotech sector's market cap would move up from $37 billion (Rs 1,68,868 crore) currently to $215 billion (Rs 9,81,260 crore). Or, that infotech companies would account for 50.8 per cent of the estimated total market capitalisation of $423 billion (Rs 19,30,572 crore) in 2005.
Others to watch out for are telecom and media companies. Current stock market favourites, they could become bigger draws in the next few years. Telecom and media stocks have 3.14 per cent and 3.71 per cent weightage, respectively, in the bse 200 at present. If these grow at, say 40 per cent, their share could jump to 16 per cent of the market cap. Together, technology, media, and telecom (TMT) could account for 66.8 per cent (50.8+16) of the total market cap.
Trend-setting drug company Ranbaxy is the pharma sector's only representative in the BT-500's top 10, but don't dismiss the sector as a placebo. Currently, pharma stocks make up just 5.97 per cent of the BSE 200, but assuming a 20 per cent annual growth for the sector, pharma companies could account for 9 per cent of the total market cap by 2005. Says U.R. Bhat, Chief Investment Officer, Jardine Fleming India Asset Management: ''TMT and pharma could account for a larger percentage of the total market capitalisation.''
And what if the transnational giants, like GE (the world's most valuable corporation) or Coke or PepsiCo, are allowed to list on the Indian markets? No sweat, really. Even if transnationals (not incorporated in India) are allowed to enlist here, it's highly unlikely that they'll rush in. And the transnationals that are already listed in India, including Colgate or Pfizer, are no longer the market's favourites. Says Madgavkar of Prudential ICICI: ''I don't see a Coke or PepsiCo listing on the Indian markets. Perhaps companies in the core sector or infrastructure companies interested in raising debt in the local market, but not the highly valued blue-chips.''
So what's BT's top 10 going to look like in 2005? Or should we just call it the BT TMT?