InvestorQ : I am holding HDFC Bank, Reliance Industries and TCS in my portfolio and am worried about their valuations. Do you think there risk of these stocks correcting sharply?
Moii Chavate made post

I am holding HDFC Bank, Reliance Industries and TCS in my portfolio and am worried about their valuations. Do you think there risk of these stocks correcting sharply?

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swati Bakhda answered.
2 years ago
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RIL results were announced on Friday and on the same day the company touched a record market cap of Rs.900,000 crore. I am sure that is what is creating doubts in your mind about valuations of these stocks. Currently, 3 Indian companies; RIL, TCS and HDFC Bank are the most valuable in terms of market cap. Your real concern appears to be if the troika is overvalued? Let me share some valuation numbers with you on these 3 stocks.

Over the last few months RIL and TCS have decisively entered the $100 billion club. On the other hand HDFC Bank is hovering around these levels, although it appears to be a matter of time before this stock also gets into that league. Let me now address your query on whether these 3 companies are overvalued at the current price. Remember that these 3 companies have a combined market cap of $325 billion. At the same time, these 3 companies are also the most profitable in Indian stock markets. If you just consider the combined net profits of HDFC Bank, RIL and TCS for the last 4 rolling quarters, it is close to $15 billion. That gives a combined valuation of 21 times P/E for these 3 companies put together. Now, these are historical P/E ratios and markets work on forward P/E more than on historical P/E ratios. Assuming a conservative 12% growth, we are looked at net profits of $18.82 billion by March 2021. That gives a forward valuation of 17 times P/E ratio. They are far from being richly valued so you don’t have to really worry. These are solid stocks with solid business models so you really don’t have much to worry about your blue chip holdings.

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