Bubbles, bubbles everywhere, but not a pin to prick

America's share of the world's stock market capitalisation has climbed consistently over the past decade and a half and sharply this year. It now stands at 61 per cent. That is astonishing dominance for a country that accounts for just over a quarter of global GDP. This has led to warnings that the US market is overheated and may correct. But what of the Indian market? For the past few years, state-owned companies in India (PSUs or public sector units) have seen a blow-out performance. Companies in sectors like Defence and Railways have seen their stock prices move up by as much as 10 times. This has set the stage for many to factor in years of unrealistic growth. If US stocks are expensive, ours are even more so. Take the case of Dassault Aviation, the makers of Rafale, and HAL (Hindustan Aeronautics Limited), the makers of Tejas. HAL has benefitted from a slew of orders for Tejas and Prachand, a light combat helicopter. Despite this, HAL's sales have only increased by 10 per cent CAGR in the past three years, even as its margins improved with the government opening up its purse strings. Yet, HAL's order book stands at approximately $11 billion. As against this, Dassault has witnessed revenues slowing over the past three years. This is now set to change. The forecast growth over the next couple of years is expected to be in the mid-teens, similar to what HAL will see. Dassault is bigger than HAL by almost 44 per cent in terms of sales, with an order book of about $41 billion. What stands out is the valuation - Dassault's EV is a measly $6.8 billion compared to HAL's $4

This article was originally published on August 01, 2024.