Titan ticks consistently in wealth creation chart

Our Bureau Chennai | Updated on November 02, 2018 Published on November 01, 2018

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India Bulls Ventures is the fastest and HDFC Bank is the top wealth creator, says Motilal Oswal study

PE-to-growth ratio holds key to wealth creation

Watch and jewellery maker Titan Company has ensured consistently good times for its investors, says Motilal Oswal’s 23rd Annual Wealth Creation Study. The stock has been the Most Consistent Wealth Creator, with the highest price CAGR of 33 per cent from 2008 to 2018, followed by Godrej Consumer, Shree Cement and Pidilite with CAGRs of 30 to 33 per cent.

The evergreen HDFC Bank has emerged the biggest wealth creator for the last five years, creating ₹3.2 lakh crore in wealth, followed by Reliance Industries, at ₹3 lakh crore, and TCS at ₹2.5 lakh crore.

But for sheer speed, it has been hard to beat Indiabulls Ventures, the fastest wealth creator over 2013-18 with a whopping 97 per cent CAGR, followed by Dalmia Bharat (81 per cent) and TVS Motors (80 per cent). Motilal Oswal’s annual wealth creation study draws lessons from the top wealth creating companies in the market, after adjusting for corporate events.

Which to buy?

So, should investors look to buy the fastest wealth creators, the biggest ones or the most consistent? Raamdeo Agrawal, author of the study and co-founder, Motilal Oswal, told BusinessLine that his preference will be for stocks in the ‘most consistent’ list. “The only problem is that these stocks are usually never available at reasonable valuations. You need to put them on your shopping list and look out for sharp corrections to buy them.”

Agrawal believes that some of the good quality stocks in the financial sector offer good buying opportunities after the recent battering. Financials were the biggest wealth creating sector during 2013-18. The sector has the unusual distinction of featuring the biggest wealth creators (private banks and NBFCs) as well as the biggest wealth destroyers (State-owned banks).

The top 100 stocks have added ₹44.9 lakh crore wealth during 2013-18, the highest ever quantum of wealth created. “During 2013-18, Sensex CAGR was only 12 per cent, but the pace of wealth creation (by these stocks) was healthy at 23 per cent CAGR. This reinforces the point that wealth creation happens in any market conditions. So, investors are better off focussing on the stocks to invest in, rather than timing the markets,” the study adds.

Margin of safety

The study this year also offers insights on what’s a good time to buy and sell high-growth stocks. It finds that stocks bought at a price earnings-to-growth ratio (trailing PE ratio divided by forward earnings) of less than 1 offer the best shot at wealth creation. It also finds that companies with scorching profit growth rates often find it hard to sustain this after five to six years. Therefore, investors should look to exit high-growth stocks trading at higher PEG (2 plus).

So, is the market attractive after the recent fall? Agrawal believes that the correction is not done yet. “The market PE is at long-term averages. But history tells us that it needs to go below it to throw up attractive opportunities.” He advises switching from high PE growth stocks to those with less demanding valuations, in the correction.

Published on November 01, 2018
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