Why I See L&T in Sensex 2030

Have you come across the term 'Fashion per capita'?

Well, if you haven't, take a look at the latest quarter presentation of one of the most expensive stocks in India (in P/E terms).

It educates you on how the doubling of India's per capita GDP will translate into the tripling of India's 'Fashion per Capita'.

I have yet to come across such terms and analogies from beauty and fashion product companies in other parts of the world. Nevertheless, the fact that the management of Nykaa (FSN E-Commerce) is extremely bullish on the company's growth prospects is evident from its presentation.

India's Long Runway on 'Fashion Per Capita'

The stock has commanded astronomical valuations since listing, despite very poor return ratios. But stock markets seem to be convinced about the wealth creating prospects of the business model.

The company calls itself 'a digitally native consumer technology platform, delivering a content-led, lifestyle retail experience to consumers'.

So, without the need for incremental capex, the company is unlikely to have inventory and debt heavy balance sheet.

However, there is no denying that there is limited visibility of long term prospects. Plus the company has stiff competition. I would certainly not bet on the stock featuring in the benchmark indices anytime soon.

The reason I make this case against Nykaa is because it is wrong to assume that every platform company will have Amazon-like success. More so, if one were to justify the stock's valuations with its earnings growth, the numbers are far from realistic.

So, as much as AI-enabled platform companies are the future, I don't recommend betting too much on fancy growth metrics.

Rather, I find much surer candidates that will find a place in Sensex 2030. Even ones that could retain their place in the index will possibly much larger weightage.

One such stock is L&T.

Semiconductors, 5G telecom, renewable energy, SpaceTech, metro rail, and defence. How many Indian companies have won orders in each of these segments in the past 30 days? The only company is L&T.

But does it really help the company having the metaphorical finger in every pie?

The fact is that L&T had already started reducing the share of its core engineering and construction business few years ago. It had already invested in capacities for defence and applied for licenses and technology tie-ups in various sectors.

As a result, the company now finds itself well poised to have the first mover advantage in sectors that are witnessing massive regulatory tailwinds.

For instance, SpaceTech was a sector no private company could dream of venturing into until few years back.

L&T is reportedly in talks with Jeff Bezos-owned space exploration firm Blue Origin to become a vendor. The company intends to supply orbital launch capabilities, such as liquid rocket engines, besides providing space habitat solutions.

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ISRO and IN-SPACe (the nodal agency for regulating private space tech players) have achieved a first-of-its-kind alignment between a government body and the private sector.

Of course, L&T is unlikely to be the only private sector participant here. Companies like Hindustan Aeronautics, Godrej & Boyce are equally strong contenders apart from dozens of startups. But the company is already supplying solid fueled engines to ISRO from its Coimbatore facility.

India recently became the 27th country to sign the Artemis Accords. This opened up lot more cooperation links between NASA and ISRO. The Artemis program is lined up by NASA and other countries to return humans to the moon by 2025. Also to expand space exploration to Mars and beyond. So, you can imagine what an important breakthrough this could be for India.

Besides L&T and DRDO have formed a partnership to create defence systems for the armed forces.

Similarly, be it water conservation projects for the semiconductor industry or green hydrogen for EV batteries or lignite-based power, L&T is a top contender for every such critical project.

What also aids L&T is that its subsidiaries like L&T Tech also offer a presence in crucial and diverse technologies. L&T Tech, for instance, has tied up with BSNL to offer the 5G network to corporates.

So, it is hard to imagine that by the end of this decade the company will not find a good degree of success in at least one of these endeavors. Moreover, the financials of the company are sound, and valuations are far more grounded compared to the long term growth prospects.

L&T's growth over the coming decade is neither dependent on India's per capita GDP growth. Nor does the company's revenue stream remain subject to fancy metrics of volume and pricing power.

So, if you were to ask me, I would choose an existing behemoth L&T over the new age platform company Nykaa, for Sensex 2030.

Be it stock of L&T or Nykaa, valuations must play a critical role in the investing decision. However, do not ignore long term revenue visibility when it comes to decadal bets.

Warm regards,


Tanushree Banerjee
Editor, StockSelect
Equitymaster Agora Research Private Limited (Research Analyst)