NEW DELHI: Had you been holding on to a few stocks, where companies had competitive edge and earnings growth on their side, you would have ended up gaining up to Rs 3 crore on just Rs 10,000 investment.
Infosys is one such stock. An investment of Rs 10,000 in this counter in June 1993 would have delivered you 2,973 times return! That Rs 10,000 investment would now have been worth Rs 2.97 crore at a compounded annual growth rate (CAGR) of 39 per cent.
Eicher Motors is a now a multibagger. Since January 1990, Rs 10,000 investment in this stock would have grown to Rs 2.01 crore at a growth of 32 per cent annually. Investment in cement maker Shree Cement would have made you Rs 1.93 crore. (See table)
"Every company has a lifecycle. Along with this lifecycle, ascertaining a company’s high profit-growth phase and its longevity is very important. Stock prices are primarily a reflection of underlying value. So, if we seek multifold increase in stock prices, it is obvious that we need to invest in companies during their phase of multifold increase in profits," Motilal Oswal Securities said in a detailed research note.
However, such longevated high-return opportunities are few, the brokerage said. There are 613 companies which are listed for at least 20 years (1997 to 2017). Of them 87 companies have price CAGR in excess of 25 per cent and only 89 companies managed profit CAGR in excess of 25 per cent, brokerage noted.
"Seeking multifold increase in profits is easier said than done. This is because there is no science for accurately predicting profit growth which is complex and multivariate. As a result, stock markets are unable to appropriately value long-term profitable growth. Looking back 10 years, in many stocks, markets could have afforded to pay significantly higher prices and multiples than they actually did," it said.
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