4 Indian Companies That Could Become Mega-Caps (HDB,INFY)

With a market capitalization of $1.45 trillion (as of May 10, 2016), the Indian stock market ranks as the tenth largest in the world. Despite its size, however, India does not have a single company that satisfies the definition of a mega-cap, i.e. one with a market cap of $100 billion or more. (See "Why All of the World's Top 10 Companies are American"). However, that could change in the next decade or two, if India maintains its status as the world's fastest-growing major economy (having leapfrogged China for that coveted status in 2015) and Indian companies cash in on those huge growth prospects. Here are four Indian companies that are top contenders to join the mega-cap ranks within the next decade - or two.

* market cap and other data as of May 10, 2016

1. Tata Consultancy Services (market cap* $74.5 billion): India's largest company in terms of market capitalization, TCS is a global information technology services, consulting and business solutions organization. TCS is part of India's famed Tata group, one of the nation's largest conglomerates and most trusted brands. In the 2015-16 fiscal year, the company's revenues increased 7.1% from the previous year to $16.5 billion, the first time revenue growth slowed to a single-digit pace since 2009, although net income increased almost 15% to $3.7 billion. While the stock has increased more than 12-fold from its October 2008 lows, further price gains are expected to be limited, given that analysts expect only about 6% upside in TCS over the next 12 months. Even so, that would give TCS a market cap of close to $80 billion, within striking distance of mega-cap status.

2. Reliance Industries (market cap $47.7 billion): Reliance is India's second-largest company by market cap, with businesses ranging from energy exploration and production, petroleum refining and petrochemicals, to retail operations and telecommunications. Established in the 1960s by Dhirubhai Ambani, Reliance has expanded from its modest beginnings to become the owner / operator of the world's biggest refining complex, a member of the Fortune Global 500 and an export powerhouse. Net income in the company's fiscal fourth quarter (ended March 31, 2016) rose 17% to an eight-year high of $1.1 billion. The stock has surged more than 19-fold since March 2000, and based on analysts' estimates, is forecast to gain 20% over the next 12 months. While that would still make Reliance a distant second to TCS in terms of market cap, the gap will narrow if Reliance continues to grow faster than TCS.

3. HDFC Bank (market cap $43.4 billion): HDFC Bank ranks No. 3 by market cap among Indian companies. The Housing Development Finance Corporation (HDFC) is India's leading housing finance company; HDFC Bank was among India's first private sector banks and has grown by leaps and bounds since it commenced operations in 1995. In its fiscal fourth quarter (ended March 31, 2016), the bank reported net profit of $520 million, up 31% from a year ago. HDFC Bank is up more than 36-fold since January 2000; based on analysts' average target price, it is forecast to gain 13% over the year ahead.

4. Infosys (market cap $41.9 billion): Arguably India's best-known company overseas, Infosys is a global consulting, technology, and outsourcing firm. In the 35 years since the company was founded by seven engineers with initial capital of only $250, Infosys has grown to become India's fourth-largest company by market cap. The stock rose to a record high on April 18, 2016, after Infosys reported a 16% increase in fourth-quarter earnings to $540 million and forecast sales growth that was better than expected. Infosys has gained 18-fold from its lows of October 2001, and analysts' forecast it to gain about 13% over the next 12 months.

The Bottom Line

TCS is nearest to the $100-billion threshold, and can be expected to become a mega-cap within the next few years. Reliance, HDFC Bank and Infosys may still be some distance off, but based on their growth trajectories, appear to be on course to join the mega-caps within the next decade or two.

By Elvis Picardo

Source: http://www.investopedia.com/articles/investing/051116/4-indian-companies-could-become-megacaps-hdbinfy.asp