»Profit Hunter by Equitymaster

On This Day - 22 JULY 2021
The Road to 100 Baggers Begins Here

Richa Agarwal, Research analyst

The business headlines over the last few days have been dominated by the Zomato IPO.

This home grown startup has indeed come a long way. It's recent public offer is a landmark in the world of startups.

While enough has been said and written about Zomato, I believe an even more interesting journey has unfolded for Info Edge.

This company has never been so much in news for its core business (naukri, jeevansathi etc) as it has been for its stake in Zomato.

Through the partial stake sale, Info Edge will make a return almost 60 times on its investment.

If you go through Info Edge's investor presentation, there is a list of ventures it has invested in. This includes the well-known Policy Bazaar.

Most of these are tiny, unlisted businesses in which Info Edge is probably one of the earliest investors.

{inlineads1}

These are risky bets for sure. These companies are currently in the incubation phase. Some of them may not survive.

And the one's that do will likely need a long time before they're monetised.

But with a careful allocation, the few that work beautifully, like Zomato, can more than make up for the ones that don't. That's the power of optionality.

The potential upside of getting into promising businesses early is huge.

The general perception is this kind of investing - in unlisted ventures - is only for big investors or big companies like Info Edge.

And retail investors can not dare to dream of such returns.

Today, I want to break this myth.

Breaking a Different Ground

I believe there is a better way to make 60 to 100 times return on investment than betting on startups.

I'm referring to a secret segment of the stock markets which is out of bound for big investors.

Now for most investors, who are used to the copycat style of investing, this segment of the market is a big turn off.

{inlineads2}

But for investors who are not looking for immediate validation and are willing to wait for a few years for spectacular returns, this segment offers the best wealth generating opportunity.

This is not just some pretty theory. It's backed up very well by lots of data.

You see, towards the end of fiscal year 2021, I ran a query on 100 baggers in the last decade.

Of the thousands of listed stocks, only 20 odd stocks achieved this feat.

The list of winners includes Avanti Feeds, Bajaj Finance, Alkyl Amines, Deepak Nitrite, Tasty Bite Eatables, Astral Polytechnik, among others.

What was common about this group?

Here are some points you should note...

These winners belong to different sectors - chemicals, food, finance, jewelry, and so on.

Since the horizon is a decade, the stocks have been through more than one economic and market cycle.

But the most interesting point is this.

{inlineads3}

All of these 100 baggers began as companies with marketcaps less than Rs 5 bn.

The only exception was Bajaj Finance which had a marketcap of Rs 23 bn in the year 2011.

The secret segment of the market I'm referring to, is a subset of this microcap universe. If you are an early investor in this segment, even with a small allocation, these stocks make a huge difference to your portfolio.

I have been exploring opportunities in this universe for some time now. As I write this, I'm glad to share that a couple of my recommendations have offered gains of over 500% and 200% in less than 2 years.

And I believe this is just the beginning of a great run for them.

Now, not all bets in this universe will turn out to be big winners. Some may fail. But the gains on the winners are more than enough to make up for the ones that don't work.

That's why this universe is meant only for a select class of investors.

Do you qualify? Yes, if you are willing to...

  • Walk an unchartered path rather than follow big investors.
  • Have a long term horizon and don't mind volatility in the meantime.
  • Invest in an equity class where the success ratio might be lower, but the quantum of gains is overwhelming and will make up for the stocks that do not perform.

You should also be fine with 40% correction in a stock if that allows you take exposure to a stock with 100x return potential.

Warm regards,

Richa Agarwal
Richa Agarwal
Editor and Research Analyst, Hidden Treasure

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 infringement

Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (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, Canada or the European Union countries, 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 (Research Analyst) 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407