MUMBAI
: Everywhere he goes, Raamdeo Agrawal, 67, is recognized. From security personnel at the airport to the toilet janitor, everyone wants to get close to him, take a picture with him. “They all watch (financial and stock market information on) YouTube. They have taken SIPs (systematic investment plans),” said the co-founder and chairman of Motilal Oswal Financial Services, one of India’s leading home-grown mutual fund and trading platforms, in an interview on the sidelines of the company’s 27th launch of the firm.annual wealth creation study (2023).
The fastest wealth creators, according to the study, were Lloyds Metals, Adani Enterprises and Tube Investments. The most consistent wealth creators have been Capri Global, Varun Beverages and Grindwell Norten, among others. And the biggest wealth creators were Reliance Industries, TCS and ICICI Bank, according to the study.
His popularity is not surprising in the context of the Indian stock markets hitting record highs this week on the back of continued investment growth by retail investors through SIPs. The BSE Sensex crossed 70,000 this week. Local demat account openings rose from 40 million in 2020 to over 130 million accounts last month, he said.
“There is demand for Indian stocks and, because of that, there will be a massive supply of equity. That’s why you see block offers. India will be one of the most vibrant capital markets in the world in the next five years,” Agrawal added.
To capture this growth, Indian investors need to think through their investment frameworks, he said. Drawing from the book Strategy Beyond the Hockey Stick (by Chris Bradley, Martin Hirt and Sven Smit), Agrawal suggests that investors should identify companies based on a set of metrics to generate hockey stick returns (HSRs). The Motilal Oswal study defines HSR as a compound annual growth rate of 25% over 10 years.
“Our first conclusion is that economic profit is a superior metric than accounting profit to understand a company’s true profitability,” he said, referring to the firm’s latest study. For economic profit, investors must capture the price of equity capital. Several companies such as Reliance Industries, Tata Steel, Tata Motors, JSW Steel or BPCL report robust accounting profit, but have zero or negative economic profits after pricing in the cost of equity capital, says the study.
Companies that exhibit robust economic returns have the ability to deliver parabolic returns to investors, he said.
It encourages investors to identify companies based on trend, endowment and movements (TEM). The market trend specific to the company is external, but the “fundamentals” of the company such as its revenue, corporate ownership, management, brand, market share and distribution network are internal to it, the study said. “Moves” or the ability of the firm to take strategic initiatives or corporate action is also internal to the firm.
“The current capital market trend is very strong and is on an upward curve. My feeling is that it is a ‘ten-year trend’ and will be life-changing for many companies that are in markets like ours,” he said. “This is a great opportunity for Indian corporations to tap into the capital market and build their companies, whatever their ambitions.”
As India is growing at 7%, many sectors are currently on the rise, he said. These include cement, financial services, defense and real estate, among others.
“Investors should go to a company that has some basis—it might not be the biggest, but it might be somewhere in the middle. The company should be trending and there should be some corporate action,” Agrawal said. As a result, mid-cap and small-cap firms are “favorably placed” to deliver HSRs, he said, although he cautioned that. currently mid-cap and small- cap indices were overvalued, compared to the large-cap index.India’s $3-trillion economy now has a market cap of $4 trillion – it’s certainly not undervalued, he added.
However, there are pockets of opportunity that investors can look at, he said.
“Everyone’s aspiration is to find one idea that delivers hockey stick performance. Investors should look for these frameworks,” Agrawal said, referring to the firm’s wealth creation study.
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