Market rally rockets 55 firms to billion-dollar orbit

While the Indian start-ups are seeing valuation markdowns in billions of dollars, more listed firms are hitting the Unicorn status.

The stock market rally that saw Sensex rising 4,678 points, or 17.59%, since the beginning of this calendar year, has added 55 listed firms with over $1 billion market capitalisation.

Out of a sample of 3,000 BSE firms, about 277 companies had a market capitalisation of over $1 billion (approximately Rs 6,444 crore) on May 26, the day NDA government at the Centre completed three years in office, shows a DNA Money analysis.

There were 222 such firms on January 1, 2017, when the value of $1 billion in local currency was close to Rs 6,822 crore.

Similarly, on May 1, 2014, days before Bharatiya Janata Party swept Lok Sabha elections, the number of billion-dollar companies on BSE was just 170.

In the last five months, high liquidity coupled with optimism fuelled by BJP's win in state assembly elections has been driving the rally.

But experts are not too enthused with the numbers.

"Some companies might have been sitting on fringes and 20-25% price movement has made them come in the billion-dollar bracket. But the market itself has moved 17-18% in this time period. And midcaps, small caps are a high-beta counter. If the index moves 17-18%, these stocks have to rise at least 25-30%. If that's the scenario, it is not a great run-up which we are talking about. Had it been 100% growth, then it is something noticeable," said Dharmesh Kant, head of retail research at Motilal Oswal Securities.

The BSE midcap index has gained 2,670 points, or 22%, so far this year.

The biggest gainer among these 222 firms that notched the billion-dollar valuation this fiscal was Escorts Ltd, which soared 102.65% between January 1 and May 26. Other big gainers, whose stock has seen over 50% jump in this period include Adani Transmission (85.90%), KEC International Ltd (79.32), JM Financial (74.25%), Hatsun Agro Products (62.81%), Can Fin Homes (62.77%), OCL India Ltd (62.04%), Godrej Properties (59.89%), Vijaya Bank (59.75%), V-Guard Industries Ltd (56.11%), JK Cements Ltd (52.14).

"The themes which have moved excessively during this period are the housing finance companies like Can Fin Homes or infrastructure-related companies which help in infra building. In real estate, stock prices have moved rather than business activity picking up at large. That move came because of the government push on the low-cost housing projects, the interest subvention scheme and boost to housing finance companies," said Kant.

G Chokkalingam, founder and managing director, Equinomics Research & Advisory Pvt Ltd, is cautious and expects a correction.

"There is a bubble in the midcap space which has also contributed to the emergence of many mid-sized companies commanding the market cap of over $1 billion. There are many companies which have posted poor March 2017 quarter results and despite poor growth, they have seen the market cap going up. There are some companies engaged in commodity business enjoying PE multiple of over 30. This kind of situation is not sustainable -- soon we should see some correction," he said.

According to Chokkalingam, there is even a possibility of a major crash.

"Due to a sharp rise in the valuation of mid and small cap stocks, the overall value of all BSE-listed stocks has moved up beyond Rs 125 lakh crore. If there is an emergence of fear in the markets due to domestic or global factors, and therefore, even if just 1% of total values are dumped in the markets, that would mean a demand for nearly $20 billion liquidity from the equity markets -- the appetite for such liquidity is not there in the markets now. Such a possibility could lead to a major crash in the markets. So it's time to go overboard on the large cap stocks, which can relatively withstand the pressures."