Can HDFC Bank have $16 trillion m-cap, ITC deliver 25% CAGR in next 20 years? D Muthukrishnan says 'develop sense of size'
'I find people are excessively focused only on PE multiples. Definitely PE cannot be ignored. But rarely people look at company's current marketcap, future industry size, company's growth potential and so on,' said Muthukrishnan on X platform
- Jan 2, 2024,
- Updated Jan 2, 2024 9:32 PM IST
D Muthukrishnan, a Chennai-based certified financial planner (CFP), who commands over 5 lakh followers on X platform (formerly Twitter) has tried to debunk myths surrounding the future market capitalisation of India's blue chip companies.
In a series of posts, Muthukrishnan explained why the bluechip firms of India can't grow at 25% CAGR in the next two decades.
"I find people are excessively focused only on PE multiples. Definitely PE cannot be ignored. But rarely people look at company's current marketcap, future industry size, company's growth potential and so on. I always give importance to marketcap," said Muthukrishnan on Monday.
"A fund manager would not have said Trent would grow 2,000 times in next 20 years if he had an iota of understanding of possible company's future market size, India's expected stock market capitalisation in next twenty years and so on. Trent cannot become say a very big part of Indian economy. Common sense is extremely uncommon," he said. He was referring to a famous fund manager who said last year that, "Trent has many more engines than the market understands it to have and hopefully over the next 20 years, Trent will give our clients the 2000x that Titan has given in the last 20 years."
Muthukrishnan, a longtime ITC investor, said someone told him that the conglomerate's scrip will rise 100x in the next 20 years and he said that is an absurd assumption because for that ITC will need a whopping $7-trillion valuation.
"Someone told me the other day, ITC Ltd would be 100x in 20 years. ITC's current marketcap is roughly $70 billion. For his prophecy to come true, ITC need to have a valuation of $7 trillion in 20 years. See the absurdity. Most of us have no clue of size. And trees don't grow to sky," he said on X.
"A company of ITC's size cannot grow at 25% for next 20 years. How can it become a $7 trillion company?" he said.
In the long run, with my current understanding, I don't foresee ITC getting valued at more than $300 billion to $350 billion, added Muthukrishnan. He also said that he sees Titan has the potential to become a trillion dollar company.
"It may sound stupid right now. Titan has capabilities to become India's Apple in the decades to come. It can morph into global premium lifestyle company. Brands like Zoya has potential to become a global premium jewellery brand. Tatas can make it happen. I don't know by when. But Titan has potential to become a trillion dollar company. At some point, they'll start acquiring premium lifestyle brands across the globe," he said.
He said an investor needs to "develop sense of size".
"You cannot own a HDFC Bank and expect 100x in next 20 years. Develop sense of size. An investor, who is also a former banker has justified in a post why it can become. HDFC Bank's current marketcap is roughly $160 billion. So he is claiming HDFC Bank can become a $16 trillion marketcap in next 20 years. Even among experienced investors, common sense is extremely uncommon," he said.
Muthukrishnan, whose X bio says he's an "amateur investor", said investors should "compare current marketcap of quality companies who are industry leaders with future market size potential".
"Develop the habit of looking at the marketcap of the companies you buy. Not that small marketcap means huge growth. But learn to compare current marketcap of quality companies who are industry leaders with future market size potential. This will give you an idea of how much growth you can expect in the next 10 to 15 years," said Muthukrishnan.
D Muthukrishnan, a Chennai-based certified financial planner (CFP), who commands over 5 lakh followers on X platform (formerly Twitter) has tried to debunk myths surrounding the future market capitalisation of India's blue chip companies.
In a series of posts, Muthukrishnan explained why the bluechip firms of India can't grow at 25% CAGR in the next two decades.
"I find people are excessively focused only on PE multiples. Definitely PE cannot be ignored. But rarely people look at company's current marketcap, future industry size, company's growth potential and so on. I always give importance to marketcap," said Muthukrishnan on Monday.
"A fund manager would not have said Trent would grow 2,000 times in next 20 years if he had an iota of understanding of possible company's future market size, India's expected stock market capitalisation in next twenty years and so on. Trent cannot become say a very big part of Indian economy. Common sense is extremely uncommon," he said. He was referring to a famous fund manager who said last year that, "Trent has many more engines than the market understands it to have and hopefully over the next 20 years, Trent will give our clients the 2000x that Titan has given in the last 20 years."
Muthukrishnan, a longtime ITC investor, said someone told him that the conglomerate's scrip will rise 100x in the next 20 years and he said that is an absurd assumption because for that ITC will need a whopping $7-trillion valuation.
"Someone told me the other day, ITC Ltd would be 100x in 20 years. ITC's current marketcap is roughly $70 billion. For his prophecy to come true, ITC need to have a valuation of $7 trillion in 20 years. See the absurdity. Most of us have no clue of size. And trees don't grow to sky," he said on X.
"A company of ITC's size cannot grow at 25% for next 20 years. How can it become a $7 trillion company?" he said.
In the long run, with my current understanding, I don't foresee ITC getting valued at more than $300 billion to $350 billion, added Muthukrishnan. He also said that he sees Titan has the potential to become a trillion dollar company.
"It may sound stupid right now. Titan has capabilities to become India's Apple in the decades to come. It can morph into global premium lifestyle company. Brands like Zoya has potential to become a global premium jewellery brand. Tatas can make it happen. I don't know by when. But Titan has potential to become a trillion dollar company. At some point, they'll start acquiring premium lifestyle brands across the globe," he said.
He said an investor needs to "develop sense of size".
"You cannot own a HDFC Bank and expect 100x in next 20 years. Develop sense of size. An investor, who is also a former banker has justified in a post why it can become. HDFC Bank's current marketcap is roughly $160 billion. So he is claiming HDFC Bank can become a $16 trillion marketcap in next 20 years. Even among experienced investors, common sense is extremely uncommon," he said.
Muthukrishnan, whose X bio says he's an "amateur investor", said investors should "compare current marketcap of quality companies who are industry leaders with future market size potential".
"Develop the habit of looking at the marketcap of the companies you buy. Not that small marketcap means huge growth. But learn to compare current marketcap of quality companies who are industry leaders with future market size potential. This will give you an idea of how much growth you can expect in the next 10 to 15 years," said Muthukrishnan.