The key to spotting the 'next Wipro'...
(Mar 23, 2015)
|A A A
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!
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.
--- Advertisement ---
Small Caps for Big Returns...
There are many investors who avoid investing in small cap stocks altogether.
The simple reason being they consider small caps to be too risky.
However, after researching for over 6 years we've defined a way of identifying high potential small caps that are already delivering strong returns...
Returns like 250% in 2 years and 1 month, 217% in 3 years and 11 months, 175% in 4 years and 5 months... amongst many more.
Now we are sure you're interested to know more about such companies and how we're picking them out!
Just click here for full details...
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
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.
"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
|| Today's investing mantra
Today's Premium Edition|
Factors that drive sales force productivity in domestic pharma
Which factors influence Indian Pharma's productivity on the domestic front?
| Get Access
|This edition of The 5 Minute WrapUp is authored by Ankit Shah and Richa Agarwal.
|DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group.
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.
There are no outstanding litigations against the Company, it subsidiaries and its Directors.
GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.
DETAILS OF ASSOCIATES:
DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
- Quantum Information Services Private Limited (QIS) having its registered office at 103, Regent Chambers, Nariman Point, Mumbai 400021 is registered under SEBI (Investment Advisers) Regulations, 2013 vide Registration No. INA000000680. QIS provides information on mutual funds and personal financial planning, financial markets in general, and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services through its website www.personalfn.com
- Agora Holdings (Cyprus) Limited having its registered office at Akropolis, 59-61, 3rd Floor, Office 301 Strovolos 2012 Nicosia Cyprus belongs to Agro group (Agora) which owns www.agora-inc.com and is one of the largest and most successful consumer newsletter publishers in the world.
- Common Sense Living Private Limited (CSL) owns www.commonsenseliving.co.in and is an initiative that provides straightforward lifestyle and wealth-building ideas from wealth coach Mark Ford. CSL is 100% subsidiary Company of Equitymaster.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
- Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
- Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
- Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
- Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
- Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
- Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
- Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
- Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
Definitions of Terms Used:
- The Research Analyst has not served as an officer, director or employee of the subject company.
- Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
- Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
- Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
- Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
- Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringementDisclosure & Disclaimer:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.
This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.
This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, the same may be ignored.
This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.
As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use
, available here. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407