Eight Indian firms have made it to the S&P Global Challenger Series of 2007, a compilation of 300 mid-sized companies from 36 countries that show highest growth characteristics and a capability to dethrone the world’s leading blue-chip companies. This is the second annual list compiled by global rating agency Standard and Poor’s (S&P), which is also a leading index provider.
The firms that qualified are ACC Ltd, India Hotels Ltd, Jain Irrigation Systems Ltd, Lakshmi Machine Works Ltd, Marico Industries Ltd, Siemens India Ltd, Titan Industries Ltd and Hotel Leela Ventures Ltd.
ACC and Siemens India have a market capitalization of more than Rs15,000 crore each and other six firms’ market capitalization varies between Rs4,000 and Rs7,000 crore.
Siemens India is the only Indian company that has made to the list for the second time. Last year, six other Indian firms qualified for the Challenger. They were Bharat Forge Company, Chennai Petroleum, Nicholas Piramal India, UTI Bank, Punjab National Bank, Oriental Bank of Commerce.
Not a single commercial bank featured in this year’s list. This is significant since three banks were on the list last year. The list comes at a time when the mid- and small-cap stocks in India haven't been performing well. Over the past one year, the key mid-cap indices BSE Midcap Index has posted a negative return of 3%. During this time, the broader market index, BSE Sensex, offered a return of over 10%.
“Mid-capitalization firms can be thought of as having overcome the ‘growing pains’ of small firms and thus a lot less risky than small-cap start-ups... the class of 2007 mid-caps offers the best ‘potential’ pool of companies, which could indeed be tomorrow’s leaders. It is precisely these leaders that the S&P Global Challengers aims to identify” says Srikant Dash, index strategist at Standard and Poor’s.
The agency identifies these companies on the basis of market-capialization, which has to be in the range of $500 million to $5 billion. They also need to post price appreciation for three years in a row. Besides, these companies need to post a growth in their earnings per share, sales, and the number of employees,
Japan has the maximum entries with 62 firms, followed by the US with 58. These two countries account for over one-third of the Challengers List of 300 companies, which is considered to be a ready reckoner for global investors looking at opportunities in investing in overseas companies.
A mid-cap fund manager who does not wish to be quoted says there are a lot more mid-cap companies in India which have the scope of becoming the potential large-cap firms. “I would say that the S&P list uses narrow parameter of selecting a mid cap stock,” he says.
The S&P list of 2007 doesn't mention the price performance of the challenger companies. However, the report of 2006 indicated that the companies constituting the S&P Global Challengers List posted a five-year return of 13% as against a 6% return from the MSCI’s All Country World Index as on 31 May 2006.