Motilal Oswal 29^thAnnual Wealth Creation Study 2024

Creating Wealth Through Bruised BlueChips

Mumbai,10^th December 2024: Motilal Oswal Financial Services Ltd. todayannounced the Motilal Oswal 29^th Annual Wealth CreationStudy, 2024. Every year for 29 years now, Mr. Raamdeo Agrawal, Chairman ofMotilal Oswal Group, commissions an Annual Wealth Creation Study.

The Motilal Oswal 29^th Annual WealthCreation Study has two parts:
1)  Findings on Wealth Creation duringthe 5-year period 2019-2024 (March ending)
2)  Theme Study:  Creating Wealth Through Bruised Blue Chips

Key Highlights of Motilal Oswal 29^th Annual Wealth CreationStudy

·      Wealth Creation during 2019-2024 is the highest ever;Wealth Destruction is among the lowest

·      Reliance Industries, AdaniGreen and Linde India – Biggest, Fastest, and Most ConsistentWealth Creator, respectively, between 2019 and 2024. Adani Enterprises is the topAll-round Wealth Creator.

·      Financials sector is thelargest wealth creating sector between 2019 and 2024, followed by the Technology andUtilities sector.

·      PSUs are regaining prominence in Wealth Creation

·      Blue Chips are aspirational investments, but mostlyrichly valued

·      Bruised Blue Chips bought at close to lows offerhandsome returns

·      Probability of permanent loss of capital is low forBruised Blue Chips

·      The main elements of the process to invest in BruisedBlue Chips are:

(1)   Create a watchlist

(2)   Await buying triggers, mainly sectortailwind and change of management

(3)   Buy at attractive valuations, typicallyPrice/Book less than 2x.

Part1) Wealth Creation Study findings

The Motilal Oswal 29^th Annual WealthCreation Study 2024 analyzes the top 100 wealth creating companies during theperiod 2019-24. Wealth created is calculated as change in the market cap ofcompanies between 2019 and 2024 (March ending), duly adjusted for corporate actionssuch as mergers, de-mergers, fresh issuance of capital, buyback, dividends, etc.The Study identifies the Fastest,Biggest, Most Consistent and All-round wealthcreators. Further, it analyzes key trends in wealth creation, provides insightsinto winning companies, and distills strategies for successful equityinvesting.

Study Highlights – 2019-24Wealth Creation

2019-24 WealthCreated is the highest ever at INR 138 trillion

n  During 2019-24, the top 100 WealthCreators of India Inc created wealth of INR 138 trillion.

n  Pace of Wealth Creation is at 26%CAGR, well higher than the BSE Sensex return of 14%.

Relianceemerges as the largest Wealth Creator for the 6^th time in a row

n For the sixth time insuccession, Reliance Industries hasemerged the largest Wealth Creator over 2019-24.

n This takes Reliance’s overallNo.1 tally to 11 in the last 17 five-year study periods.

Adani Green hasemerged the Fastest Wealth Creator

n Adani Green has emerged the FastestWealth Creator with 2019-24 Price CAGR of 118%.

n INR 1 million invested in 2019in the top 10 Fastest Wealth Creators would be worth INR 17.5 million in 2024,a return CAGR of 77% vi/s 14% for Nifty 50.

Linde India isthe Most Consistent Wealth Creator

n We define Consistent WealthCreators based on the number of years the stock has out-performed in each ofthe last 5 years. Where the number of years is the same, the stock price CAGRdecides the rank.

n Based on this, over 2019-24,the relatively low-profile Linde India hasemerged as the Most Consistent Wealth Creator. It has outperformed the NiftyTotal Return Index in all the last 5 years, and has the highest price CAGR of 68%.

AdaniEnterprises is the Best All-round Wealth Creator for the third time in a row

n We define All-round WealthCreators based on the summation of ranks, under each of the 3 categories –Biggest, Fastest and Consistent. Where the scores are tied, the stock priceCAGR decides the All-round rank.

n Based on the above criteria, Adani Enterprises has emerged as theBest All-round Wealth Creator.

 Technology emerges aslargest Wealth Creating sector for the second year in a row

n Financials sector has emerged as thelargest Wealth Creating sector, ahead of Technologyand Utilities.

PSUs make asignificant comeback trail

n PSUs’ (public sectorundertakings) Wealth Creation performance during 2019-24 is a significantimprovement over the last three studies: 20 PSUs accounted for a healthy 17% ofWealth Created.

n  The key factors driving PSU WealthCreation are:

– Profit of 9 Financial companies rising 19x over 5 years; and

– Profit of Coal India rising 4x over5 years.

Financialsthe top Wealth Destroyer despite being the largest Wealth Creator

n The total Wealth Destroyedduring 2019-24 is INR 4.3 trillion, a mere 3% of the total Wealth Created bytop 100 companies. This is the lowest in the last 14 study periods.

n Five of the top 10 WealthDestroying companies are from the Financials sector (including Insurance).

n Interestingly, Financials isthe top Wealth Destroying sector, despite being the largest Wealth Creator.

Part2) Theme Study: Creating Wealth Through Bruised Blue Chips

Summary

·       Blue Chips are stocks of largecompanies with a reputation for quality, reliability, and the ability tooperate profitably in both good and bad times. Given their highly positiveattributes, in normal times, Blue Chips tend to be richly valued.

·       However, occasionally, even BlueChips get “bruised” i.e. their stock price sees a meaningful fall. Suchbruising offers a golden opportunity to build large positions in the stock(assuming there is no structural decline in the Blue Chip’s fundamentals).

·       Multiple case studies of bruisedBlue Chips suggest certain common causes for their bruising and triggers fortheir subsequent recovery.

·       The causes for the bruising may beclassified as –

1. Stock market-related (stock market downturns, resulting in mere stock price fall disproportionately higher than the deterioration in the company’s fundamentals)
2. Company-related

a.       External to the company – Economy and sector headwinds,change in competitive landscape, adverse change in government regulation, etc

b.      Internal to the company – Unsuccessful mega acquisitions,poor leadership and management, corporate governance issues, declining profitand profitability, etc.

·       Similarly, the triggers drivinghealing of the Bruised Blue Chips may also be classified as –

1. Stock market-related (recovery in market and Blue Chip stock prices)

2. Company-related

a.       External to the company – Sector tailwind, improvement incompetitive landscape, favorable change in government regulation, etc

b.      Internal to the company – Change inleadership/management, corporate restructuring, new product launches, costcontrol, etc.

·       The key to profit from BruisedBlue Chips is to buy them close to the lows, post the bruise. This necessitatesthe following steps –

1. Create a watchlist of Bruised Blue Chips
2. Clearly understand the reasons for the bruising
3. Await healing triggers for finally buying
4. Buy only when if the company’s prospects are bright, and the valuation is attractive, typically Price/Book less than 2x.

·      Current Bruised Blue ChipsWatchlist

Bruised Blue Chips are more visible during market downturns. CurrentIndian markets are in an extremely elevated state, giving limited options ofBruised Blue Chips. Below is a basic watchlist of 2024 Blue Chips which arelower by 30% or more from their 5-year highs.

Bruised Blue Chipwatchlist

IMPORTANT DISCLAIMER

•       This study isprimarily an analysis of economic data, company financials and stock prices.

•       The companiesmentioned here should not be construed as our investment recommendations oropinions.

About Motilal OswalFinancial Services Limited.

MOFSLis a financial services company. Its offerings include Wealth Management,Capital Markets (Institutional broking & Investment banking), Asset &Wealth Management (Asset Management, Private Equity & Wealth Management),Housing Finance & Equity based treasury investments. MOFSL employs 13,300+employees serving to 94 Lakh clients via distribution reach in 550+ cities.MOFSL has Assets Under Advice of Rs. 5.7 Lakh Crores.

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