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Motilal Oswal's latest Wealth Creation Study tells investors to adopt 'focussed investing'

TCS was the biggest, and Ajanta Pharma the fastest, wealth creator in 2011-16

Published: Dec 12, 2016

The financial markets generate a lot of number on a per second basis. There are people who have made it a profession to convert this information into trends, buy-sell signals, charts and pivot tables. Over the last 18 years of financial journalism, I have realised that every number has a story to tell. And these numbers as a trend normally never lie. I am forever looking for these trends.

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Image: Joshua Navalkar

Motilal Oswal Financial Services unveiled its 21st Wealth Creation Study on Saturday. The basic takeaway from the report is to buy stocks of businesses at a price lower than the intrinsic value. Every year, for the past 21 years, the broking firm has been ranking the top 100 companies in terms of absolute wealth created.

The report concludes that as stock markets are fairly efficient, opportunities for concentrated bets come seldom. The firm believes that focussed investing is a sound strategy to capitalise on these opportunities. By investing into 15-20 stocks with strongly favourable odds, investors can enjoy risk diversification and return magnification.

  • The study concludes that TCS is the biggest wealth creator for the fourth time in a row. For the period between 2011-2016 the company has shown an annual growth of 16 percent in its share price.
  • Ajanta Pharma has emerged as the fastest wealth creator for the second time in a row with a stock price multiplier of 53 x for the period between 2011-2016.
  • Asian Paints is the most consistent wealth creator over 2006-2016 by virtue of appearing in the top 100 wealth creators in each of the last 10 studies with the highest 10-year price CAGR of 30 percent.
  • Consumer/Retail is the biggest wealth creating sector with a return on equity of 31 percent in 2016 and an overall wealth of Rs 6,36,400 crore.
  • A collapse in the price of commodities has caused wealth destruction as seven of the top ten wealth destroyers are in the business of global commodities which includes metals, banking and utilities.
  • The top 100 wealth creators created Rs 28.4 lakh crore of wealth during 2011-2016.
  • Eight of the top ten wealth creators are the same as of last year. Kotak Mahindra Bank and Maruti Suzuki have entered the top ten displacing Axis Bank and Tata Motors.
  • PSU stocks remain insignificant in terms of wealth creation. The number of PSUs in the top 100 wealth creators is only seven. These are BPCL, HPCL, Petronet LNG, Concor, LIC Housing, Bharat Electronics and Power Grid Corporation.
  • Five companies—Wipro, Indian Oil, Larsen & Toubro, ICICI Bank and Siemens —created enough wealth to qualify among the 100 biggest, but failed to make it to the final list as their stock price return was lower than the Sensex, which delivered 5 percent between 2011-2016.
  • The report states that of the 30 Sensex Stocks in 2011, as many as 18 underperformed over the next five years or were down 12 percent on an average. If an investor had avoided these stocks and only bought the remaining 12 stocks, the average returns from these stocks would be 14 percent annually over the next five years. This is much higher than the 5 percent returned by the Sensex.

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