India's top listed companies remain the most expensive globally

P/E of 13 Indian firms that are among top 500 in world is 50% higher than global average

India’s top listed companies remain the most expensive globally with a price-to-earnings (P/E) multiple that is nearly 50 per cent higher than the global average and 1.5 times more expensive than China’s top firms.

There are now 13 Indian firms among the world’s 500 biggest companies in terms of market capitalisation, up from nine last year. These 13 companies are now trading at a P/E multiple of 37X, against the top 500 average P/E multiple of 22.5X.

In comparison, 57 Chinese companies in the top 500 list account for 9.7 per cent of the global market capitalisation, well below their share in profits and revenues. These companies accounted for 14.1 per cent of the combined revenues of the top 500 companies and 14.3 per cent of net profit.

In contrast, Indian companies have a higher share of market capitalisation (1.82 per cent) than revenue (1.2 per cent) and profit (1.1 per cent) among the top 500.

The Indian companies are also richly valued, compared with their counterparts in South Korea, Taiwan, Hong Kong, and Singapore. (See the adjoining chart).

The rising valuation in India and other emerging markets (EM), especially China, has prompted many foreign brokerages to downgrade Indian equities.

Significantly, Indian equity valuations are also than developed markets such as the United States, Europe, and Japan. The US is currently the most expensive among the developed markets, thanks to top dollar valuations of tech giants such as Apple, Google, Microsoft and Amazon.

Indian equity valuations are around 33 per cent higher than the US, 67 per cent higher than Western Europe, and more than twice that of Japan. And unlike the rest of the world, the Indian valuations have changed very little over the past year.

Globally, P/E multiples have declined significantly in the past year as corporate profits were hit by the Covid-19 shock. For example, the average P/E multiple of the world’s top 500 companies decreased nearly 20 per cent or 530 bps, thanks to a 59 per cent year-on-year (YoY) jump in the combined net profit of these companies over the past year. In India, however, the P/E multiple decreased just 4 per cent YoY or 150 bps.

The Indian companies that are part of the top 500 are Reliance Industries, Tata Consultancy Services, Infosys, HDFC Bank, ICICI Bank, Hindustan Unilever, HDFC, Bajaj Finance, State Bank of India, Kotak Mahindra Bank, Bharti Airtel, Wipro, HCL Tech.

Globally, Apple remains the most valuable company with a market cap of nearly $2.5 trillion, followed by Microsoft at $2.3 trillion, and Saudi Aramco at around $2 trillion.

The top 500 list is dominated by companies from the US, with the European Union a distant second, followed by China and Japan. There are 221 US companies now, up from 206 last year. These companies had a combined market capitalisation of $33.4 trillion, and annual revenues and profits of $9.3 trillion and $1.2 trillion, respectively.

There are 90 companies from the EU (including Switzerland), up from 84 a year ago. These companies have a combined market cap of $8.6 trillion and revenues and profits of $4 trillion and $390 billion, respectively. Japan has 30 representatives now, down from 38 last year. They have a combined market cap of $2.22 trillion and revenues and profits of $1.47 trillion and $172 billion, respectively.