The top 10 year multibagger stocks

Dec 24, 2012

BSE-Sensex at 3352. Yes, you would have been reading exactly this if we had had an issue of The 5 Minute Wrapup on December 24, 2002. A decade down the line, much water seems to have flowed under the bridge. Indian capital markets have undergone a sea change and thousands of more stocks have got listed. Meanwhile, the BSE Sensex itself has gone up 575% to touch 19,200 odd levels. That makes it compounded average annual returns of 19.1% in 10 years. Staying invested in Sensex stocks alone has therefore undoubtedly reaped rich dividends. But what about those who chose to create a wider portfolio?

Periods of bull run, recession, economic crisis, scams, bankruptcies and bailouts. Those who have been investing since the start of this decade have seen it all. No doubt it must have been a heady task for them to stick to a select group of stocks in the hope of becoming wealthy. In other words, to maintain a 'buy and forget' portfolio.

We were rather intrigued when we looked at the biggest multibaggers from BSE 100 over the past decade. The list was a mix of 'must haves' and 'rather avoid' when one intends to forget the stocks for a good ten years. The top 20 stocks offered very handsome CAGR of around 40% in ten years. Notably this is double the Sensex' returns. But while Equitymaster itself had vouched for the likes of Titan, L&T, Sun Pharma and Godrej Consumer (GCPL) through StockSelect recommendations in 2002, many others did not meet our investing criterions for long. Some have not yet been able to meet those yet and probably never will.

Thus a 'buy and forget' portfolio that one creates based on strict fundamental criteria need not produce all market beating gems. What it needs to produce is a bunch of stocks that preserve wealth with a few of them turning out to be real gems. Asian Paints, Dabur, HDFC Bank, that do not feature in the list of top 20, have also been our favourites for almost a decade. The CAGR from these too exceed 30%.

To drive home the point, selecting stocks that you wish to buy and forget needs to be a very careful and well researched task. Even then not every stock in that portfolio would turn out to become the biggest multibaggers. All you need to make sure is that you keep the likes of Mahindra Satyam (a popular stock in 2002) out.

We therefore certainly do not think that every stock in this list of 10 year multibaggers could have been a part of 'buy and forget' portfolio in 2002. For the next decade too we would rather bet on sound and resilient stories that fetch reasonable risk and inflation adjusted returns.

Data source: Ace Equity