While it is useful to know the changes that happened in the top 10 coveted list during the last 10 years, it can be challenging to figure out how this list will look like, say 10 years from now. On a perusal of growth rate performance of Nifty 50 companies during the last 5 years, I see a normal distribution ranging from a positive +30.7% (Lupin) to a negative -22.7% (Vedanta). However, positive performers (companies with positive rates of growth in market cap) outnumbered negative performers 35:15.

In other words, 35 companies enjoyed positive growth during the last 5 years while 15 suffered a negative growth rate. The top 25 stocks organized in terms of CAGR show that companies grew at a hectic pace during the last five years. The CAGR among top 25 ranged from 30%(Lupin, HCL Tech, Indusind)  to 10% (Mahindra and Mahindra). Going forward, I believe maintaining such high growth rates may be difficult given the headwinds blowing across the world.

There is a recent Mckinsey study that says that long-term equity returns for the next 20 years will be nearly half of the last 30 years average for US and European equities. While US and European equities clocked 8% annualized growth in the last 30 years, they are expected to clock a growth of 4-6.5% in the next 20 years. Also, in the next 20 years, Mckinsey expects inflation to rise, interest rates to remain the same, and a weaker GDP growth. More importantly, it observes that emerging market companies and new tech competition could cut margins. The story is the same on the bonds side where the last 30 years produced a bond return of 5% in the US, the next 20 years will produce a return ranging from 0-2%. Welcome to a world of diminishing returns!

Hence, it may be prudent to assume that going forward the CAGR for Nifty 50 companies could be just half of what it enjoyed during the last five years (excluding negative growth companies). While this may sound conservative, in my view, it is more realistic since compounding at a very high rate for a period of 10 years can produce extraordinary numbers. Given this approach, here is the list of Top 10 Nifty 50 companies by 2025.

Who makes it to Nifty top 10?

6 out of the 2015 Top 10 makes it to 2025 with TCS continuing to remain the most valuable Nifty 50 stock. TCS would have improved its market cap from $72 billion to $158 billion implying a CAGR of 8%. Sun Pharma would have moved from 9th position to 2nd position while HDFC Bank will retain its 3rd slot even in 2025. Notable new entrants to the Top 10 list would be HCL Tech that was positioned at 22 in 2005, 19 in 2015 and would be 6th by 2025. Impressive indeed! Maruti Suzuki also has a similar ascent (21: 2005; 13: 2015; 7th:2025). Kotak Mahindra Bank moves from 16th position in 2015 to 8th position in 2025 while Lupin moves from 23rd (2015) to 10th (2025) with its market cap improving to $52 billion.

Who loses it?

Notable exclusions in 2025 from the Top 10 include Reliance, Infosys, Coal India, and ONGC. Reliance will move to 11th position from 2nd, while Infosys will move to 12th from 5th. Coal India will move to 15th from 6th while ONGC will move to 16th from 7th.

Sector Shifts

While Oil and Gas dominated the scene in 2005, it is nowhere to be seen by 2025. Telecom has already lost it by 2015 while tobacco holds on thanks to ITC. Financials will see continuous growth in the Top 10 while automobiles will be a surprise entrant by 2025 (thanks to Maruti). However, the most important ascent is noticed in pharma whose market cap will explode from $30 billion to $160 billion courtesy Sun Pharma and Lupin. IT will still be a big part with TCS and HCL Tech leading the way.

Investment Implications

The jostling for space in the Top 10 can be important to make investment decisions. Firstly, it will have huge impact on the index per se. If you are investing in ETF’s, you will mostly track the index which is heavily skewed in favour of top 10. Index investors will also navigate this process of churning given the shifts in weights. Index realignment happens over time and hence investors in ETF’s will underperform active managers especially in emerging markets like India where ability to add alpha is very high.

If you are in stock picking, this study shows sectors to avoid (oil and gas, Telecom) and sectors to embrace (pharma, IT). You may even want to deep dive attractive sectors (by dwelling into mid-caps) to bet on future winners. Automobiles and auto ancillary are good examples.

The market cap of Nifty 50 will increase to say $1.6 trillion in 2025 from $824 billion at the end of 2015. That is a modest 7% annualized growth between 2016 to 2025.

However, if you focus on the top 10 list likely to be in 2025, your investment performance should definitely be better than 7% at the least. However, what is crucial is to keep an eye on this transformation as even stable companies can spring surprise on the negative side.