The key to spotting the 'next Wipro'... - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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The key to spotting the 'next Wipro'... 

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In this issue:
» The two steps to build a money-multiplying portfolio
» India Inc's debt growing much faster than govt debt...
» How did the markets close today?
» ...and more!


00:00
Today morning when we arrived in office and were going through the emails, there was this one particular email that really caught our attention. It was from one of our valued Hidden Treasure and The India Letter subscribers. In his email, this client put forth a very simple and sincere request. He mentioned that he was interested only in long term investments and was keen to find a list of wealth-multiplying stocks such as Wipro that would make him super rich.

Let's say hypothetically that you or your father invested Rs 10,000 in a stock called Wipro Products Ltd (name later changed to Wipro Ltd) in 1980. As we learnt from a blog, the amount would have fetched you 100 shares of the company. The company had been mainly engaged in the manufacture of vegetable oil. In 1980, it made a foray in the IT domain when the industry was in a very nascent stage in India.

Fast forward to now. Today Wipro Ltd stands as India's third largest IT services exporter. As of December 2014, the company had 154,297 employees servicing over 900 large enterprise and Fortune 1000 corporations with a presence in 61 countries.

So back to the modest investment you made in Wipro in 1980... Let's say you didn't add or sell a single share of the company since then. How much would your initial investment worth Rs 10,000 in Wipro Ltd be worth today? It is worth noting that through a series of bonus share issues and stock splits over the decades, your initial 100 shares have grown to 96 lakh shares. So as of yesterday's closing price, your holdings would be worth a staggering Rs 6,257,760,000!

That's nearly Rs 626 crore... You could sell the stock right away and have the full amount credited in your bank account since there are zero taxes on long term capital gains. What more, your previous year's dividend cheque would have been worth about Rs 7.7 crore!

You would surely be living a king's life... if only a small investment of Rs 10,000 would have been made three and half decades ago.

So when our dear subscriber wrote to us last night, we could understand what was on his mind.

At Equitymaster, we very well understand the power of equities, the power of compounding returns and the possibility of immense wealth creation through a sound investing process.

But at the same time, we would like to be honest with you. In retrospect, it may seem like Wipro was a no-brainer investment. Many investors would be a very naturally inclined to finding the 'next Wipro' in the making and hold it for 3 decades until it makes them super rich.

But let us tell you that this task is easier said than done.

Firstly, it is practically impossible to foresee a Wipro-in-the-making thirty years in advance. Remember that for one successful company, there are hundreds of companies that either fail or become dud investments. You wouldn't become a billionaire holding a lousy investment, would you? So, your first task should be to find the right pool of companies that have the potential of being wealth compounders. It means that the companies should have solid business fundamentals, sound financial health, quality management, strong future growth visibility and a clearly perceptible economic moat that competitors cannot easily breach.

Most investors think that finding the right set of stocks is all there is to successful investing. But this is not the complete truth. Finding the right stocks is only the starting step. The real battle begins thereafter.

Many of you who have been investing in stocks for a long time will agree that at some point or the other you may have held great stocks that went up manifold; only that you sold them off a bit prematurely. So here is the real challenge for all investors - to do as little as possible.

In today's age of unprecedented information explosion, 24x7 news channels and mobile internet, it is impossible for people to not do anything at all. Every time you are exposed to a piece of information - stock price movement, news updates, etc. there is an immediate impulse to take a stand, to take a decision.

"...how will the Fed decision impact the markets?"

"...seems like the markets are about to correct sharply."

"The stock is up 50% in just 3 months... I guess I should book some profits."

"Should I sell now and buy the stocks later?"

"The quarterly results were below expectations. Is it time to exit the stock?"


This is a constant chatter going on inside the heads of most investors. What happens as a result - you miss out the big picture. You end up taking short-sighted decisions. And you miss the opportunity of creating the fortune of a lifetime.

At Equitymaster, we realized some years ago that there were many serious investors who wanted to invest in rock solid businesses and were willing to patiently have a have a very long term investment horizon. And that was how our premium recommendation service ValuePro came into existence. Radhika Pandit, who heads ValuePro, and her team work with a very clear mandate - to hand-pick a portfolio of high quality stocks based on the value investing principles of Warren Buffett. We sincerely hope that at least some of these stocks become great money-multipliers for our subscribers.

What is your approach to building a money-multiplying portfolio? Let us know your comments or share your views in the Equitymaster Club.

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---------------------------


03:30   Chart of the day
While a lot is expected of India Inc in supporting the growth revival, the statistics continue to reflect a poor performance. As we all know, the earnings profile of India Inc is already weak. What is further concerning is the rising levels of debt. As suggested in an article in Business Standard, at a compound annual growth rate of 24.8%, the increase in India Inc's debt in last decade is almost twice the growth rate in public debt.

The rise in India Inc's debt levels has surpassed the GDP growth rate. As such, the debt to GDP ratio for India Inc stands 34%, up from 14.8% a decade back. In contrast, Union government's debt to GDP ratio has come down from 71.5% to 55.2% in the same duration. One can argue in defense of India Inc that more private companies are now into capital intensive sectors which need more debt, especially through PPP projects.

To some extent, access to low cost foreign debt is also a reason why the debt levels look higher. However, one should note that the rise in debt levels of India Inc has come along with the rise in bad loans in the banking system and deteriorating credit quality of Indian companies. Across emerging and Asian economies, Indian Inc has one of the highest leverage levels. Hence, it would be a folly to not take rising debt levels of India Inc seriously. Unless the companies clean their balance sheets, they are unlikely to contribute to or benefit from the economic growth.

Rising debt levels of India Inc


04:45
While the Indian stock markets traded firm for most of the trading session following favourable global cues, they slipped into the red towards the end of the session. The BSE-Sensex closed 69 points below the previous session's closing level. The sectors leading the losses were IT, consumer durables and banking.

04:55  Today's investing mantra
"I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years". - Warren Buffett
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Equitymaster requests your view! Post a comment on "The key to spotting the 'next Wipro'...". Click here!

11 Responses to "The key to spotting the 'next Wipro'..."

kalyan kale

Aug 11, 2017

KINDLY SENT RALTED ARTICLE ON MY GIVEN MAIL ADDRESS

Like 

kalyan kale

Jul 25, 2017

how to sopt next wipro

Like 

KALYAN kale

Jun 10, 2017

In which stocks should i invest to creat immense wealth like wipro

Like (1)

kalyan Ramdas kale

Jun 6, 2017

Want to create immense

By investing in equity

Like (1)

AMAR JYOTI PATRA

Mar 16, 2017

Please suggest next wipro or infosys

Like (1)

Doshiraj

Nov 7, 2016

Which stock is going to next wipro

Like (1)

subhash dhull

Apr 14, 2016

Valuable information by you

Like (1)

subhash dhull

Apr 14, 2016

Valuable information by you

Like (1)

Sriram

Mar 24, 2015

I have asked this question before and I have not received an answer yet. I understand that equitymaster have always encouraged long term investments. I would like to understand how many stocks have equitymaster recommended, lets say a decade ago, and have not given a sell yet. Is there any stocks like that?

Like (1)

sharad Singhvi

Mar 24, 2015

I agree that those smart people who invested in Wipro would have made a stupendous fortune and thanks for bringing this staggering fact to the notice of your subscribers. Having known Wipro since 1980s (I did a summer assignment with wipro in 1985) few things do stand out. Even during these days Wipro was known for its values and upright policies and was highly respected by all its stakeholders. Ajim Premji was a legend even then and was held in very high esteem in the industry. In hindsight we could probably single out few distinguishing elements such as early mover advantage, quality of leadership and ability of company to attract and retain great leaders (beyond the lure of money). So here is my take - Look for early movers, quality of management, strong value system and professional loyalty of talented managers and hopefully, the company may be a multibagger in few decades.

Like (1)
Equitymaster requests your view! Post a comment on "The key to spotting the 'next Wipro'...". Click here!

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