TIME FOR BETTING ON REBALANCING THEME!

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 TIME FOR BETTING ON REBALANCING THEME!


We have been witnessing a phenomenal increase in the valuations of India's biggest company RELIANCE recently.  Despite global uncertainty and volatility, RIL share price has been achieving new heights day by day. All the sectors of the company have been doing well. Particularly OIL AND PETCHEM business are doing extremely well.  The GRM is at the highest level amid the Russia-Ukraine war which is not likely to end soon.  If the situation remains the same for the next couple of quarters, RIL is likely to generate huge cash in the oil business.  The other two sectors Reliance Retail & JIO are also doing well currently. As such we have been witnessing a run away boom in the share price of RIL. The market capitalization has already touched the $250 billion mark and is likely to become the first Indian company to achieve a $300 billion mark in the medium term.


Though we foresee a bright future for the company, the market cannot ignore the other market leaders like TCS and HDFC Bank.

 

The current market capitalization of TCS is around $170 billion which is far behind in comparison to the market cap of RIL. Although the company has shown tepid growth in the last quarter, looking at the growth potential in the IT sector, one cannot ignore the company for investment purposes. There has been a huge gap of $80 billion in two conglomerates and this gap has to come narrow in near future for sure. If we talk about corporate governance, there is no doubt that TCS is much ahead of RIL.  The current PE is hovering around 33-34 and in my opinion it is likely to enjoy a good premium in the medium term if we believe in the recent commentary of the management regarding the future prospects of the company. A decent appreciation of 30% is possible keeping in mind the horizon of 9-12 months time.



Similarly, the market capitalization of HDFC Bank has come down dramatically after the merger announcement of HDFC & HDFC Bank.  The current valuation of this banking giant is around $98 billion, the third most valuable company in our country. HDFC Bank has one of the fantastic balance sheets amongst the banking sector. The Asset class is also one of the best having lowest NPA. This bank has been considered as one of the most respected entities and is darling of even FPIs. Looking at the capex announcement by many large corporate houses and GDP growth prospects of the country, we foresee a decent credit growth in the banking sector.  Since HDFC Bank is having largest corporate clients, it is likely to have the best credit growth in the  coming years. HDFC Bank after merger of HDFC is likely to become the second most valuable company in our market. We foresee tremendous growth prospects in the merged entity and valuation might not remain at such a low level over the medium term. Conservatively, 30% appreciation we can foresee at the current market price with a 9-12 months horizon.  



In a healthy market the heavy weights have to remain in a balanced manner. Too much weightage of a single entity is not a healthy sign of the market and the rebalancing process takes place over a period of time.  Institutional buyers always keep this factor in their mind and keep on rotating their portfolios to rebalance the allocation of funds amongst the heavy weights. Currently, the two heavy weights TCS & HDFC have been underperforming whatsoever may be the reason. They are likely to outperform in the future backed by healthy growth and good corporate governance.  


Be a part of the rebalancing theme and appreciate your wealth in future.


Good Luck!


-Rajendra Jhanwar


         






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