The Markets and Historical Performance of Companies

The market has not stopped its upward journey, the reason seem to be nothing else but the advent of Corona vaccines and the liquidity injected, and expectation of further such injections. The companies are likely to perform better but we have still to confirm whether the performance will be better against a normalised past year or on a low base established in current corona year.

We present to you the performance of some of the Nifty companies in different sectors to know how far have we gone in giving excessive valuation on hopes:

  1. Adaniports has improved sales by 1.67 times and PAT by 1.29 times since FY16 till FY 20 while its market cap is higher by 2.69 times.
  2. Asianpaints has improved sales by 1.42 times and PAT by 1.54 times since FY16 till FY 20 while its market cap is higher by 2.84 times.
  3. Axisbank has improved sales by 1.56 times and PAT by 0.22 times since FY16 till FY 20 while its market cap is higher by 1.67 times.
  4. Bajfinance has improved sales by 3.26 times and PAT by 3.8 times since FY16 till FY 20 while its market cap is higher by 9.5 times.
  5. Bajajfinsv has improved sales by 2.64 times and PAT by 1.80 times since FY16 till FY 20 while its market cap is higher by 3.5 times.
  6. Bajaj-auto has improved sales by 1.31 times and PAT by 1.29 times since FY16 till FY 20 while its market cap is higher by 1.62 times.
  7. Britannia has improved sales by 1.38 times and PAT by 1.07 times since FY16 till FY 20 while its market cap is higher by 2.10 times.
  8. Cipla has improved sales by 1.24 times and PAT by 1.13 times since FY16 till FY 20 while its market cap is higher by 0.41 times.
  9. Coalindia has improved sales by 1.23 times and PAT by 1.17 times since FY16 till FY 20 while its market cap is higher by 2.10 times.
  10. Drreddy has improved sales by 1.12 times and PAT by 0.95 times since FY16 till FY 20 while its market cap is higher by 1.79 times.
  11. Eichermot has improved sales by 1.46 times and PAT by 1.47 times since FY16 till FY 20 while its market cap is higher by 1.13 times.
  12. Gail has improved sales by 1.39 times and PAT by 3.91 times since FY16 till FY 20 while its market cap is higher by 3.53 times.
  13. Grasim has improved sales by 2.25 times and PAT by 1.79 times since FY16 till FY 20 while its market cap is higher by 2.07 times.
  14. HDFC has improved sales by 1.90 times and PAT by 2.50 times since FY16 till FY 20 while its market cap is higher by 2.20 times.
  15. HCLTech has improved sales by 1.47 times and PAT by 1.22 times since FY16 till FY 20 while its market cap is higher by 3.83 times.
  16. HDFCBank has improved sales by 1.72 times and PAT by 2.07 times since FY16 till FY 20 while its market cap is higher by 2.53 times.
  17. Heromotoco has improved sales by 1.02 times ans PAR by 1.15 times since FY 16 till FY20 whiles its market cap is higher by 0.92 times.
  18. Hindalco has improved sales by 1.17 times and PAT by 1.12 times since FY16 till FY 20 while its market cap is higher by 1.65 times.
  19. Infy has improved sales by 1.45 times and PAT by 1.23 times since FY16 till FY 20 while its market cap is higher by 2.26 times.
  20. ITC has improved sales by 1.24 times and PAT by 1.62 times since FY16 till FY 20 while its market cap is higher by 1.32 times.
  21. Indusindbk has improved sales by 2.44 times and PAT by 1.94 times since FY16 till FY 20 while its market cap is higher by 1.00 times.
  22. JSWSteel has improved sales by 1.74 times and PAT by 0.00 times since FY16 till FY 20 while its market cap is higher by 2.35 times.
  23. Kotakbank has improved sales by 1.79 times and PAT by 2.32 times since FY16 till FY 20 while its market cap is higher by 2.66 times.
  24. L&T has improved sales by 2.79 times and PAT by 2.13 times since FY16 till FY20 while its market cap is higher by 4.20 times.
  25. Maruti has improved sales by 1.31 times and PAT by 1.05 times since FY16 till FY 20 while its market cap is higher by 1.59 times.
  26. M&m has improved sales by 1.25 times and PAT by 0.04 times since FY16 till FY 20 while its market cap is higher by 2.31 times.
  27. Nestle has improved sales by 1.51 times and PAT by 3.49 times since FY16 till FY 20 while its market cap is higher by 3.12 times.
  28. Reliance has improved sales by 2.17 times and PAT by 1.32 times since FY16 till FY 20 while its market cap is higher by 8.42 times.
  29. TCS has improved sales by 1.52 times and PAT by 1.33 times since FY16 till FY 20 while its market cap is higher by 2.08 times.
  30. UPL has improved sales by 2.5 times and PAT by 1.89 times since FY16 till FY 20 while its market cap is higher by 1.94 times.
  31. Titan has improved sales by 1.86 times and PAT by 2.22 times since FY16 till FY 20 while its market cap is higher by 4.75 times.
  32. Wipro has improved sales by 1.18 times and PAT by 1.09 times since FY16 till FY 20 while its market cap is higher by 5.21 times.
  33. Ultracemco has improved sales by 1.67 times and PAT by 2.34 times since FY16 till FY 20 while its market cap is higher by 1.57 times.

Some errors might have crept in above calculations hence you are advised to do your own calculations too. It can be generally observed that large cap companies are commanding very very fancy valuations and naturally so because flood of funds from overseas could have bought only liquid large caps. This gives me some discomfort that next five years may fail to justify these valuations and when it will be generally felt people will tend to sell. Who will buy then. The transactions taking place at these high level are going to be mostly for trading purposes and not for long term investing. So there will be a lot of floating stock keeping market from rising further and rising fast. Another point to mention here is that FY20 allowed the companies to pay taxes @25% and that also made PAT rise more than the PBT or EBIDTA. The budget may try to garner more resources for the tax kitty and there might be some surcharges on incomes for one thing or the other. Now for those who wish to remain invested, the simple thing to do would be to pick right stocks from Nifty mid-caps and shun Nifty large caps.

By the way, contraction in advance tax collection from corporate is down by 13% till December 15 ’20 from 20% in November compared to last year. The RBI has to keep the inflation at trending at 4% through mechanism of Repo rates which are ought to increase if this is adhered to. The pointers are suggesting that a major correction may take place without notice.

A pertinent point to note here is that those of the bigger companies which not even kept pace with overall GDP growth since FY16 in terms of sales revenue but have far more market cap growth are surely dangerous items to hold at current prices. GDP was Rs 137.71 lac crs which closed FY20 at Rs 203.39 lac crs i.e. 1.47 times. Seen from the point of view of Nifty as a whole the market would not seem to be too high which is higher by 1.70 times but this equation is bound to change when we have final figure of GDP for FY21. FY21 GDP will be lower than FY20 because of the dent on account of Corona. If one is too optimistic about revival of economy in FY22 then present level of Nifty may seem OK but for specific companies ruling way high than the ratio of GDP growth or the the ratio of sales growth over the last five years there is cause of worry. Add to this the angle of PAT growth for a clearer picture. If we see that profit growth has been better than sales growth then it may be presumed that PAT will be under pressure in next five years because margins cant be kept growing all the time. I give more weightage of sales growth because this represents better use of resources and better financial management and PAT is just a matter of circumstances not of effort other than such effort that is aimed at managing costs. Now the investor community mat evaluate their holdings in above light and readjust the portfolio.

Since Dec ’16 Nifty is now about 1.70 times (from 8200 to 14000).

Happy New Year,

HariOm,

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