BT500 firms soar 40% in market cap but face tough challenges ahead

Between October 2023 and September 2024, the BSE Sensex—the stock market’s barometer—jumped 28%, climbing from the 65,828-mark in September 29, 2023 to an impressive 84,300 on September 30, 2024. This upswing in the 30-share BSE Sensex wasn’t just numbers on a chart; it also represented massive wealth creation. But the markets have been in a correction mode since then. Nearly Rs 102 lakh crore was added to the market capitalisation (m-cap) of the BT500 companies, bringing their total valuation to a staggering Rs 363 lakh crore. To put that in perspective, the Union government had proposed a budget of `100 lakh crore for infrastructure over five years in 2019-20—a figure this surge in m-cap has matched in just 12 months. And the Top 4 companies on the BT500 list—Reliance Industries Ltd, TCS, and HDFC Bank, respectively—have retained their ranks from 2023. What’s striking is this year’s growth—the strongest in three years. Last year, the m-cap of the BT500 companies inched up 4%, while the rise was 26% in 2022. This time, investors bought on every fall, despite a tough economic situation. In fact, there was no impact on the stock price of foreign investors or Indian promoters selling equity to raise more funds via the QIP route. While a K-shaped economic recovery is a reality, company sales in the first half of FY25 hint at some pain. Plus, geopolitical tensions are shifting from Russia-Ukraine to the Middle East. Let us take a closer look at how these factors are reshaping the landscape. Digital Power and Rural Reach The overall trend among the BT500 companies shows that many FMCG firms have struggled to maintain or improve their ranking in 2024. The challenges could be attributed to inflationary pressures that have increased input costs, leading to lower margins. There is sluggish consumer demand, especially in rural areas, traditionally a strong market. This can be partially attributed to the new digital players enjoying better valuations in the market than the brick-and-mortar players. Hindustan Unilever (HUL) slipped to No. 8 on the list from No. 5 in 2023, while ITC dropped from No. 8 to No. 10. Nestlé India remained in the Top 50 but did not see significant growth in its ranking, reflecting slower stock market performance. Procter &amp; Gamble’s performance did not improve significantly, indicating challenges similar to those faced by other FMCG giants, while Dabur India faced a slight drop in its ranking for the same reason. Emami also experienced a drop in ranking. “FMCG companies are adjusting pricing strategies and increasing rural market engagement to cope with inflation and supply chain issues,” says Atul Parakh, CEO of fintech platform Bigul. Expansion into the rural market with differentiated product strategy could be a theme going forward. With the digital wave sweeping across rural India, FMCG giants are exploring all options to engage with digital players. A shining example of this shift is the Open Network for Digital Commerce (ONDC), an initiative targeted at democratising e-commerce across India. In fact, quick commerce expansion will also help the FMCG majors to reach out to wider audiences at the cost of regional companies or local brands. Strength Amid Challenges The performance of sectors such as banking and financial services has been significantly impacted by the Reserve Bank of India’s new regulations on increasing the capital requirement on unsecured loans and challenges on the deposit mobilisation front. Deposit growth in the banking system has not kept pace with growth in lending, leading to higher borrowing costs for financial companies, which has resulted in lower-than-expected profit growth. RBI’s higher weightages for risky unsecured loans and funding to NBFCs have led to lower yields, as these segments once delivered better margins. However, some big players such as HDFC Bank, ICICI Bank and State Bank of India (SBI), held on to their ranks at No.3, No. 4, and No. 7, respectively, this year, as did Axis Bank at No. 17. Kotak Mahindra Bank, however, slipped from 12th in 2023 to 16th in 2024, while Bandhan Bank saw a steep decline, dropping from No. 144 in 2023 to No. 217 this year. NBFC giant Bajaj Finance also fell from 10th to 12th on the list. “Financial institutions are grappling with the effects of higher interest rates and geopolitical uncertainties on consumer behaviour and lending practices,” says Parakh of Bigul. However, the strong balance sheets of banks—with comfortable levels of capital, lower non-performing assets (NPAs), and higher provision coverage ratios—provide a solid foundation for BFSI players to capture future growth. The Upstarts There are also some new entrants on the BT500 list, while some firms that went public in the recent past have also made significant gains in rank. Zomato and PB Fintech have risen in the rankings, while Go Digit General Insurance, a new-age general insurance player, has secured a spot in the Top 250. The rise of new entrants highlights the broader trend of Indian consumers adopting digital and innovation within the market. “These companies have benefitted from leveraging digital platforms to efficiently scale and meet consumer demands, a strategy that has become particularly effective in recent years. Given the continued emphasis on digital transformation and the adaptive capabilities demonstrated by these new-age companies, it is likely that emerging leaders from this space will continue to gain prominence over the next three to five years,” says Atul Shinghal, Founder &amp; CEO of Scripbox, a digital wealth management platform. “As new-age companies emerge, investors are increasingly interested in them, especially with recent gains in the pre-IPO space. Companies like Swiggy have experienced notable growth, with Swiggy’s pre-IPO shares [being] actively traded... Over the next few years, sectors such as AI, electric vehicles, and sustainability innovations are likely to attract more investor attention during pre-IPO and IPO phases,” says Krishna Patwari, Founder and Managing Director of Wealth Wisdom India Pvt. Ltd. Clearly, companies that can quickly adapt to market changes while focussing on sustainable growth, will likely succeed. The broader economic environment will also set the trend for these companies. The Future Titans Market experts suggest that emerging sectors, particularly renewable energy, are poised to gain significant momentum in the coming years, though challenges persist. “The renewable energy sector, specifically solar, demonstrates strong growth potential, with installations reaching 90.8 GW by September 2024, up from 2.8 GW in 2014. However, the path to achieving India’s 500 GW renewable energy target by 2030 faces headwinds due to heavy import dependencies, with projected annual solar import bills reaching $30 billion,” says Parakh. “Top gainers in 2024 from the unlisted market were NSE, Tata Capital, Waaree Energies (now listed), and Vikram Solar. As a result, more enterprises in these areas, as well as new sectors like AI and EVs, are likely to gain investor attention in the future,” says Patwari of Wealth Wisdom. Shinghal of Scripbox says that emerging sectors such as digital platforms, renewable energy, and logistics are poised for significant growth, thanks in part to evolving consumer behaviour, government policy, ESG-related awareness and tech advancements. The digital transformation, that was accelerated during the pandemic, “has increased the reliance on and development of digital platforms across various industries”, says Shinghal. Surge in Traditional Sectors According to Parakh, traditional sectors—particularly quality-focussed segments—show strong potential for a comeback in the next 12 months. “Manufacturing, especially in the IT and metals space, is displaying early signs of revival after recent underperformance,” he says. Citing the ‘EY Global IPO Trends Q2 2024’ report, Patwari says, sectors like defence, renewable energy, industrial machinery, consumer goods, advanced material, and health, along with tech and life sciences, are expected to thrive. “This growth is driven by industrial expansion, supportive government initiatives, increased capital accessibility, urbanisation, shifting consumer behaviour, and a young demographic,” he says. The market is experiencing a rotation from the growth to quality stocks, which had underperformed in the past few years. While capital goods, pharma, and two-wheelers are showing reduced outperformance, the information technology and metals sectors are gaining momentum. “The market is also witnessing a convergence between midsmall-cap and large-cap performance differentials. This rotation pattern suggests that traditional manufacturing sectors, particularly quality-focussed large-caps in IT, could lead the comeback. However, investors should maintain cautious positioning in metals and commodities due to uncertain growth catalysts and dependence on the Chinese market dynamics,” says Parakh. Domestic private capital expenditure is expected to lead the next phase of growth for the raditional sectors, says Shinghal. He also points to two other factors: global supply chains stabilising and companies reassessing and strengthening their supply networks after pandemic disruptions; and the government’s policy push with PLI schemes. “[These are] expected to lead to an acceleration in growth for manufacturing,” he says. @anandadhikari

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BT500 firms soar 40% in market cap but face tough challenges ahead

Firms that are part of the BT500 universe have had a pretty good year. The consolidated market cap of these companies jumped nearly 40% over the past year. But going ahead, these firms will have to navigate many challenges.