The fastest wealth creators, according to the study, were Lloyds Metals, Adani Enterprises and Tube Investments. The most consistent wealth creators were Capri Global, Varun Beverages and Grindwell Norten, among others. And the biggest wealth creators were Reliance Industries, TCS and ICICI Bank, according to the study.
His popularity is not surprising in the context of the Indian stock markets, which hit record levels this week, on the back of a sustained investment surge from retail investors through SIPs. The BSE Sensex crossed 70,000 this week. Local demat account openings have risen from 40 million in 2020 to more than 130 million accounts as of last month, he said.
“There is a demand for Indian equities and, because of that, there will be massive supply of equity. That is why you are seeing block deals. India will be one of the most vibrant capital markets in the world in the next five years,” Agrawal added.
To capture this growth, Indian investors need to think through their investment frameworks, he said. Drawing from the book Strategy Beyond the Hockey Stick (by Chris Bradley, Martin Hirt and Sven Smit), Agrawal suggests that investors need to identify companies based on a set of metrics to generate hockey stick returns (HSRs). The Motilal Oswal study defines HSR as compounded annual growth returns of 25% over 10 years.
“Our first conclusion is that economic profit is a superior metric to accounting profit to understand the true profitability of a company,” he said, referring to the firm’s latest study. For economic profit, investors need to capture the price of equity capital. Several companies such as Reliance Industries, Tata Steel, Tata Motors, JSW Steel or BPCL report robust accounting profit, but have zero or negative economic profits after pricing in the cost of equity capital, the study says.
Firms that exhibit robust economic profits have the ability to deliver parabolic returns to investors, he said.
It encourages investors to identify companies based on trend, endowment and moves (TEM). The market trend specific to the company is external, but the company’s “endowments” such as its revenue, corporate ownership, management, brand, market share and distribution network are internal to it, the study said. “Moves” or the ability of the company to take strategic initiatives or corporate action is also internal to the firm.
“The current capital market trend is very strong and is in an upcurve. My sense is that it is a ‘decadal trend’ and is going to be life changing for a lot of companies who are in markets like ours,” he said. “This is a great opportunity for Indian corporates to tap the capital market and build their companies, whatever their ambitions are.”
As India is growing at 7%, many sectors currently are on an uptrend, he said. These include cement, financials services, defence, and real estate, among others.
“Investors should go to a company which has some base—it may not be the largest, but may be somewhere in the middle. The company should be on a trend and there should be some sort of a corporate action,” Agrawal said. As a result, mid-cap and small-cap firms are “favourably placed” to deliver HSRs, he said, though he cautioned that currently mid-cap and small-cap indices were overvalued, compared to the large-cap index. The $3-trillion Indian economy has a market cap of $4 trillion now—it is certainly not undervalued, he added.
However, there are pockets of opportunities that investors can look into, he said.
“Everybody’s aspiration is to find one idea which delivers hockey stick returns. Investors should look for these frameworks,” Agrawal said, referring to the firm’s wealth creation study.
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Published: 13 Dec 2023, 11:23 PM IST