Motilal Oswal group recently released the latest edition of its annual wealth creation study authored by Raamdeo Agrawal, joint managing director of Motilal Oswal Financial Services (MOFSL). A panel discussion was organised at the launch of this report. The panel featured Madhusudan Kela, Chief Investment Strategist, Reliance Capital; Sanjoy Bhattacharyya, founder CEO of Fortuna Capital, and Raamdeo Agrawal and Navin Agarwal of MOFSL. Excerpts:

Navin Agarwal: Vision to see, courage to buy and patience to hold are part of wealth creation. Sanjoy, your thoughts on “vision to see”?

Sanjoy Bhattacharyya: In 1988, when I visited Japan, I was stunned to see how technology was improving peoples’ lives — you could buy lunch from a vending machine, railway platforms had no ticket counters, and so on.

And I thought that the companies which make such software could be interesting investments.

Back home, some years later, I got a chance to meet NS Raghavan and NR Narayana Murthy of Infosys, and I thought, if there is somebody in India who could do well in software technology, it is them. And I bought the stock. Essentially, you need to find outstanding management aligned to a great business at a reasonable stock price.

Navin: Raamdeo, you have several investment frameworks. Which have worked for you?

Raamdeo Agrawal: Value migration seems to be a powerful framework. In 1994, a friend gifted me the book by Adrian Slywotzky. My first buy based on that was Hero Honda in 1995.

I could see that in two-wheelers, value will migrate from scooters to motorcycles.

My next idea was Infosys in 1997; I could see global value in IT migrating to India starting with Y2K. Then in 2003 came Bharti Airtel, where value migrated from wired telephony to wireless.

Now, I practice QGLP (high Quality with Growth, Longevity and reasonable Price). When all these fall into place, you have a potential multi-bagger.

Navin: How do you manage to find the “courage to buy”?

Madhusudan Kela: To me, courage comes from two sources. The first is the size of your portfolio itself — the larger it is, the greater the courage, because you can manage the occasional failure.

But the greatest source of courage is when, after you have bought into the stock, the company starts delivering on its promises and the stock price behaves the way you expected it to.

Sanjoy: Stock markets are not the place for you to get a Param Vir Chakra for valour. For that, join the army.

To me, bear markets are the biggest source of courage to buy blue chips at throwaway prices. Another source of courage is unquestionable integrity of the management.

Navin: Raamdeo, Hero Honda has been a 100x stock for you over 20 years. How do you manage such “patience to hold”?

Raamdeo: Such patience comes from the comfort of the purchase price.

Once the stock price rises two-three times and the dividends start flowing in, holding on becomes that much easier.

Navin: Sanjoy, how do you assess the quality of the management?

Sanjoy: My tests are: (1) How does the management deal with adversity and failure? (2) How does it think about the future, that is, succession planning? (3) How good is its capital allocation (reflected in long-term RoE) (4) How is its integrity, for instance, whether it over-commits and under-delivers or vice-versa?

Navin: Finally, what are good hunting grounds for 100x stocks in the current market?

Madhusudan: The last 10 years have all been about rural India — higher crop prices, NREGA, rising land prices, and so on.

The next 10 years will be about urban India — infrastructure, bullet-trains, tourism, hotels, even IT and pharma.

Sanjoy: Some potential areas are genomics (that is, gene sequencing), contract manufacturing, analytics and specialty retail (luxury watches, home improvement, and so on).

Raamdeo: India itself is blessed as a 100x economy, and many 100x stocks will emerge.

One strong possibility is that of Indian pharma companies discovering their own blockbuster NCEs (new chemical entities).

Many of them are incurring significant R&D spend, and if one company gets it right, many will soon follow.

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