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India is set to end the year with five companies valued at more than 5 trillion each as foreign investors pumped a record $18.5 billion into Indian stocks in the December quarter, boosting valuations.

Hindustan Unilever Ltd and Infosys Ltd entered the 5 trillion market capitalization club this year, joining Reliance Industries Ltd, Tata Consultancy Services Ltd and HDFC Bank Ltd.

Their shares have risen in the range of 9-68% during the year.

Billionaire Mukesh Ambani’s Reliance Industries is the most valuable company with a market value of 12.64 trillion, followed by Tata Consultancy at 10.91 trillion, HDFC Bank at 7.69 trillion, Hindustan Unilever at 5.63 trillion and Infosys at 5.26 trillion.

Indian stocks plunged more than 20% in March after the nationwide lockdown was announced due to covid; they have not only recovered the losses but also scaled new highs in November and December.

“The pandemic has created massive opportunities for some businesses. It has created enormous opportunities for pharmaceutical and chemical companies, the technology industry, for offshoring and remotely operating industries," said analysts at HDFC Securities.

There are at least three other companies that are within striking distance of entering the exclusive club if the market rally sustains in 2021. They include mortgage lender Housing Development Finance Corp. with a market cap of 4.44 trillion, Kotak Mahindra Bank with a market value of 3.88 trillion and ICICI Bank at 3.54 trillion.

Source: Capitaline
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Source: Capitaline

Some relatively smaller companies also boosted their market capitalization during the bull run. For instance, the market cap of Asian Paints gained 48% this year to 2.54 trillion and is now closing in on cigarette maker ITC Ltd’s 2.56 trillion market value.

“I would reckon the rise in Asian Paints market cap is the most striking in the large-cap space. Asian Paints trades at FY22 price to earnings at 72 times, while ITC at 17 times. Asian Paints is expected to see 3,500 crore profit, while ITC is likely to deliver 16,000 crore in FY22. Asian Paints now trades at a premium to Hindustan Unilever and Page Industries," brokerage Motilal Oswal Financial Services Ltd said in a note to clients.

The surge in the equity markets has also helped some of the heavyweight public sector stocks such as NTPC Ltd and Oil and Natural Gas Corp. regain the 1 trillion market-cap mark.

However, the rise in valuations has made analysts cautious. “Valuations are not cheap anymore. However, our view remains constructive on equities as an asset class. India is possibly on a cusp of a new business cycle, which would mean strong growth in corporate earnings and further upgrade in earnings estimates. Consequently, we remain constructive on equities as an asset class and look at every dip as an opportunity to buy," said Sharekhan by BNP Paribas.

“Moreover, there is likely to be strong liquidity support to Indian equity markets. Domestically, most investors are anyway sitting on the fence or have created some cash in their portfolios lately," it added.

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