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BSE 30: Where do you go? - Views on News from Equitymaster
 
 
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  • Mar 25, 2003

    BSE 30: Where do you go?

    The equity markets have not lived up to the expectations of individual investors. The markets for the last decade have been marred by scandals and unavoidable events, which have caused the souring of sentiment.

    Here we study the BSE-30 index stocks, how the group has performed in the last eight years. The Sensex has stocks, which are mainly from the manufacturing sector. However, the group does include banking and finance stalwarts like State Bank of India (SBI) and Housing Development Finance Corporation Ltd. (HDFC). From the services sector we have Infosys and Zee Telefilms.

      FY96 FY02 CAGR
    Sales (Rs Mn) 688,164 2,166,939 17.8%
    Operating Profit / EBDIT (Rs Mn) 150,947 447,559 16.8%
    Net Profit / PAT (Rs Mn) 60,361 168,280 15.8%
    Market Cap* 1,449,162 2,547,714 6.5%

    *As on 06/03/96 and 03/03/2003 respectively

    The Indian economy has been bogged down by lack of agricultural output, industrial slowdown, increase in inflation and geo-political issues. All these factors have indeed soured investor sentiment. However, these factors have not deterred the BSE 30 companies from growing. In FY95, the average sales figure for the group was around Rs 688 bn, now this figure has jumped to Rs 2,167 bn (FY02), a 17% CAGR. What’s more, at net profit levels the group has grown from Rs 60 bn (FY95) to Rs 168 bn in FY02, a 16% CAGR.

    Infosys has had the distinction of posting a CAGR of 74% for its topline, the nearest at 60% is Zee Telefilms. The manufacturing pivotals have been growing in the range of 10-20%. However, all other companies have been posting at a healthy growth between 25-40%, which indicates that the companies are becoming more efficient than what they were a few years back. Also read ‘India Inc: Sweating it out’.

    But this performance is not reflected in the total market capitalization of the BSE – 30. While bottomline of the Sensex has gone up 16% CAGR in the last decade, the market cap of the same group is up only 6%. So, it seems that the Sensex has not kept pace with the earnings growth. In effect, the P/E of this BSE 30 group, which stood at 24x FY95 earnings, has now come down to 12x earnings currently.

    This means that investors were expected India Inc. to grow rapidly post liberalization and clock a higher GDP growth (above the traditional hindu growth rate). But post FY97, GDP growth has been sluggish and we are yet to see even a 7% GDP growth in the last 5 years.

    Going forward, FY04 also does not seem to enthuse investor confidence, as there are concerns of a lag effect of poor agricultural output on FY04. The length of the current US-Iraq war can also affect the performance of some these companies. However, with the Sensex currently trading at P/E of 12x, the valuations do look attractive from the long-term perspective.

     

     

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