21st Annual Wealth Creation Study (2011-2016) - Detailed Report

12/14/2016
21stAnnualWealthCreationStudy(20112016)DetailedReport
ThemacStudy|December2016
21STANNUALWEALTHCREATIONSTUDY
(20112016)
CUSEDINVESTING
PowerofallocaoninWealthCreaon
HIGHLIGHTS
Stockallocaon(howmuchtobuy)isapowerfultoolforporolio
performance,butisunderresearchedvisvisstockselecon(whattobuy)
Kelly'sformulaoers3insightsforequityinvesng:(1)Lookforasymmetric
payo(2)Createedge(3)Betbig
Opportuniesforbigbetscomeseldom;FocusedInvesngisasoundstrategy
tocapitalizeonthem
KeystosuccessfulFocusedInvesngare:(1)Clearporoliogoal(2)Superior
stockselecon(3)Raonalallocaon(4)Acvemonitoring
Disciplinedpracceshouldleadtoexceponalreturnsratherthan
acceptablereturns
"Betseldom,andonlywhentheoddsarestronglyinyourfavor,butwhenyoudo,bet
big,holdforthelongterm,andcontrolyourdownsiderisk."
Fromthebook
ConcentratedInvesng,
byAllanCBenello,MichaelVanBiema,TobiasECarlisle
TOP10WEALTHCREATORS(20112016)
THEBIGGEST
THEFASTEST
THEMOSTCONSISTENT
Wealth
RankCompany
Created
5Year
Company
Price
(INRb)
Appeared
Company
CAGR(%)
inWC
Study(x)
10Year
Price
CAGR(%)
TCS
2,637
AjantaPharma
121
AsianPaints
10
30
2
3
HDFCBank
HindustanUnilever
1,475
1,266
WelspunIndia
EicherMotors
88
70
KotakMahindraBank
SunPharma
10
10
26
25
ITC
1,197
KajariaCeramics
66
TitanCompany
10
23
5
6
SunPharma
Infosys
1,169
948
VakrangeeSoware
BajajFinance
63
59
Bosch
HDFCBank
10
10
22
21
7
8
HCLTechnologies
KotakMahindraBank
819
760
PIIndustries
Symphony
58
56
AxisBank
DaburIndia
10
10
20
20
9
10
MaruSuzuki
HDFC
742
682
AmaraRajaBaeries
AurobindoPharma
56
50
NestleIndia
CumminsIndia
10
10
17
17
RaamdeoAgrawal
(Raamdeo@MolalOswal.com)/
ShrinathMithanthaya
(ShrinathM@MolalOswal.com)
WethankMrDhruvMehta(Dhruv.Mehta@dhruvmehta.in),InvestmentConsultant,forhisinvaluablecontribuontothisreport.
4
InvestorsareadvisedtoreferthroughimportantdisclosuresmadeattheendoftheResearchReport.
21stAnnualWealthCreaonStudy(20112016)
http://www.motilaloswal.com/site/rreports/HTML/636171340589512309/index.htm
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MolalOswal21stAnnualWealthCreaonStudy
Page
WealthCreaonStudy:Objecve,Concept&Methodology
WealthCreaon201116:FindingsSummary
Theme2017:FocusedInvesng
.......................1
............................................23
................................................................419
WealthCreaon201116:DetailedFindings
.........................................2033
Appendix1:MOSL100BiggestWealthCreators
................................3435
Appendix2:MOSL100FastestWealthCreators
................................3637
Appendix3:MOSL100WealthCreators(alphabecal)
..........................38
AbbreviaonsandTermsusedinthisreport
Abbreviaon/Term
2006,2011,2016,etc
Descripon
ReferencetoyearsforIndiaarenancialyearendingMarch,unlessotherwisestated
Avg
Average
CAGR
CompoundAnnualGrowthRate
LtoP/PtoL
LosstoProt/ProttoLoss.Insuchcases,calculaonofPATCAGRisnotpossible
INRb
IndianRupeesinbillion
PriceCAGR
Inthecaseofaggregates,PriceCAGRreferstoMarketCapCAGR
WC
WealthCreated
WealthCreated
IncreaseinMarketCapitalizaonoverthelast5years,dulyadjustedforcorporate
eventssuchasfreshequityissuance,mergers,demergers,sharebuybacks,etc.
Note: Capitalinedatabasehasbeenusedforthisstudy.SourceofallexhibitsisMOSLanalysis,unlessotherwisestated
WealthCreaonStudy
Objecve,Concept&Methodology
Objecve
ThefoundaonofWealthCreaonistobuybusinessesatapricesubstanallylowerthantheir
"intrinsicvalue"or"expectedvalue".Thelowerthemarketvaluecomparedtotheintrinsic
value,thehigheristhemarginofsafety.Everyyearforthepast21years,weendeavortocull
outthecharacteriscsofbusinessesthatcreatevaluefortheirshareholders.
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AsPhilFishersays,"It seemslogicalthatevenbeforethinkingofbuyinganycommonstock,the
rststepistoseehowmoneyhasbeenmostsuccessfullymadeinthepast."
OurWealth
Creaonstudiesareaemptstostudythepastasaguidetothefuture,andgaininsightsinto
thevariousdynamicsofstockmarketinvesng.
Concept&Methodology
WealthCreaonistheprocessbywhichacompanyenhancesthemarketvalueofthecapital
entrustedtoitbyitsshareholders.Itisabasicmeasureofsuccessforanycommercialventure.
Forlistedcompanies,wedeneWealthCreatedasthedierenceinmarketcapitalizaonover
aperiodoflastveyears,aeradjusngforequitydiluon.
Werankthetop100companiesindescendingorderofabsoluteWealthCreated,
subjecttothe
company'sstockpriceatleastoutperformingthebenchmarkindex(BSESensexinourcase).
Thesetop100WealthCreatorsarealsorankedaccordingtospeed(i.e.priceCAGRduringthe
periodunderstudy).
Wepresentthestudyhighlightsinpages23.Thedetailedndingsarepresentedinpages
2033.Appendix1(pages3435)ranksthe100WealthCreatorsbysize,andAppendix2(pages
3637)ranksthesame100WealthCreatorsbyspeed.
AthemestudytledFocused
InvesngPowerofallocaoninWealthCreaon
isfeatured
inpages419.
9December2016
WealthCreaon20112016
Highlights
TCSistheBiggestWealthCreatorforthefourthmeinarow
TCS hasemergedasthebiggestWealthCreatorfortheperiod201116,retainingthetop
spotitheldeveninthepreviousthreestudyperiods(201015,200914and200813).
HDFCBank hasincheduptoNo.2aer3yearsofremainingNo.3.
Exhibit1 Top10BiggestWealthCreators
RankCompany
WealthCreated
INRb%share
CAGR(%)
Price
PAT
P/E(x)
RoE(%)
20162011
20162011
1TCS
2,637
16
22
21
26
37
37
2HDFCBank
1,475
18
26
21
27
17
16
3Hind.Unilever
1,266
25
14
46
30
102
76
4ITC
1,197
13
14
28
28
28
30
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5SunPharma
6Infosys
1,169
948
4
3
30
9
24
15
38
20
26
27
16
24
19
26
7HCLTech
819
28
27
21
20
20
21
8KotakMahindra
760
24
17
36
21
10
14
9MaruSuzuki
742
24
14
25
16
17
16
682
10
18
17
23
20
21
TotalofTop10
11,695
41
18
19
24
25
23
24
TotalofTop100
28,436
100
19
16
22
19
20
22
10HDFC
AjantaPharmaistheFastestWealthCreatoragain
AjantaPharma
hasemergedastheFastestWealthCreatorforthesecondmeinarow,
with201116stockpricemulplierof53x(121%CAGR).
EicherMotors isamongthetop10FastestWealthCreatorsforthelast5studies.
Exhibit2 Top10FastestWealthCreators
RankCompany
PriceAppn.
CAGR(%)
MktCap(INRb)
(x)
Price
PAT
2016
P/E(x)
2011
2016
2011
AjantaPharma
53
121
52
124
31
WelspunIndia
23
88
234
100
14
226
EicherMotors
14
70
48
520
36
42
20
KajariaCeramics
13
66
30
76
33
Vakrangee
11
63
52
105
27
17
BajajFinance
10
59
39
373
26
29
10
PIIndustries
10
58
37
78
25
10
Symphony
56
15
83
77
17
AmaraRajaBaeries
56
27
150
16
31
11
AurobindoPharma
50
28
436
57
22
10
10
AsianPaintsistheMostConsistentWealthCreator
AsianPaints istheMostConsistentWealthCreatorover200616,byvirtueof
1.Appearingamongtop100WealthCreatorsineachofthelast10studies;and
2.Highest10yearPriceCAGRof30%.
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Exhibit3 Top10MostConsistentWealthCreators
Rank
Company
Appearedin10yrPrice10yrPAT
P/E(x)
RoE(%)
WCStudy(x)CAGR(%)CAGR(%)
20162006
20162006
AsianPaints
10
30
23
48
29
31
31
2
3
KotakMahindra
SunPharma
10
10
26
25
23
25
36
38
20
30
10
16
24
41
TitanCompany
10
23
24
44
45
20
47
Bosch
10
22
14
53
27
15
24
HDFCBank
10
21
31
21
28
17
16
AxisBank
10
20
33
13
20
16
18
DaburIndia
10
20
19
36
32
30
49
NestleIndia
10
17
11
63
29
32
92
CumminsIndia
10
17
15
32
26
22
23
10
Consumer/RetailisthebiggestWealthCreangsector
Consumer/Retail
hasemergedasIndiasbiggestWealthCreangsectorforthesecond
consecuveme,andthethirdmeinthelastfouryears.
Exhibit4 Consumer/RetailisthetopWealthCreangsector
Sector
WCShareofWC%CAGR1116(%)
P/E(x)
RoE(%)
(Noofcompanies)
Consumer/Retail(23)
(INRb)
6,364
2016
22
2011
8
Price
21
PAT
15
2016
38
2011
30
2016
31
2011
32
Banking/Finance(14)
Technology(7)
4,995
4,960
18
17
24
14
20
16
19
20
19
20
18
24
16
28
19
29
Auto(15)
4,093
14
20
10
20
13
19
32
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Healthcare(15)
Cement(5)
3,705
1,266
13
4
4
1
25
20
18
3
Oil&Gas(3)
670
14
21
CapitalGoods(4)
513
16
Telecom&Media(2)
394
Metals/Mining(2)
289
Ulity(1)
203
Others(9)
Total
30
35
22
16
18
9
18
14
26
10
27
14
11
33
26
17
18
17
19
21
23
13
10
15
11
12
16
17
18
12
18
14
12
984
21
17
25
21
19
19
28,436
100
100
19
16
22
19
20
22
CommoditycollapsedrivesupWealthDestrucon
7ofthetop10WealthDestroyersareinthebusinessofglobalcommodies.
Exhibit5 TopWealthDestroyingcompanies
Company
WealthDestroyed
INRb
Exhibit6 TopWealthDestroyingSectors
Price
%ShareCAGR(%)
MMTC
NMDC
889
735
6
5
47
19
BHEL
ONGC
JindalSteel
730
645
592
5
4
4
23
6
39
Vedanta
StateBankofIndia
570
542
4
4
21
7
NTPC
SAIL
CoalIndia
529
524
348
3
3
2
8
24
3
6,104
15,146
40
100
Totalofabove
TotalWealthDestroyed
Wealth
Destroyed
(INRb)
%
Share
Metals/Mining
Banking&Finance
Ulies
5,058
2,991
1,555
33
20
10
CapitalGoods
1,393
Oil&Gas
Constn./RealEst.
Technology
1,256
1,012
301
8
7
2
Chemicals&Fert.
Telecom
295
214
2
1
1,071
15,146
7
100
Sector
Others
Total
Fordetailedndings,pleaseseepages2033.
9December2016
Theme2017
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9December2016
FocusedInvesng
PowerofallocaoninWealthCreaon
Betseldom,andonlywhentheoddsarestronglyinyourfavor,butwhenyoudo,betbig,
holdforthelongterm,andcontrolyourdownsiderisk.
fromthebook
ConcentratedInvesng,
byAllanCBenello,MichaelVanBiema,TobiasECarlisle
1.Backdrop
20studiesonWhattobuy;rstoneonHowmuchtobuy
Twokeyaspectsofequityinvesngare:
muchtobuy
(1)Whattobuy
(i.e.stockselecon),and
(2)How
(i.e.stockallocaonorweightageinagivenporolio).Almostallofthepast20
AnnualWealthCreaonStudieshavecoveredvariousaspectsofwhattobuy.Inthis,the21st
Study,wefocusonhowmuchtobuy.
Thesimpliscexampleofahypothecalporoliopresentedbelowshowshowstockallocaon
cansignicantlyinuenceinvestmentperformance.Forthesamesetofstocks,3porolioswith
dierentallocaonsturnintotalreturnrangingfromaslowas8.5%toashighas+18.5%.
Exhibit1
Porolioswiththesamestockscanturninwidelydierentreturnsbasedonallocaon
Stock
Allocaon
PoroliolevelReturn
Stock1
Return
50%
PorolioA
10%
PorolioB
20%
PorolioC
5%
Stock2
Stock3
40%
30%
10%
10%
15%
15%
5%
5%
4.0%
3.0%
6.0%
4.5%
2.0%
1.5%
Stock4
Stock5
Stock6
20%
10%
0%
10%
10%
10%
10%
10%
10%
5%
10%
10%
2.0%
1.0%
0.0%
2.0%
1.0%
0.0%
1.0%
1.0%
0.0%
Stock7
10%
10%
5%
10%
1.0%
0.5%
1.0%
Stock8
20%
10%
5%
15%
2.0%
1.0%
3.0%
Stock9
30%
Stock1040%
10%
10%
5%
5%
15%
20%
3.0%
4.0%
1.5%
2.0%
4.5%
8.0%
100%
100%
100%
5.0%
18.5%
8.5%
PorolioTotal
PorolioAPorolioBPorolioC
5.0%
10.0%
2.5%
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Despitetheabovephenomenon,wearesurprisedtodiscoverhowlileliteraturethereison
thiscricalaspectofinvesng.Academicianstendtobelievethatstockallocaon,evenmore
thanstockselecon,bordersonartratherthanscience,andhence,itdependstoagreatextent
onthetemperamentandstyleofindividualinvestmentpraconers.Investmentpraconers,
ingeneral,seempronetoallocatestocksmorebyintuionandemoonthanreason.
Inthisstudy,weoersomeinsightsonallocaon,andsuggestaraonalapproachforthe
same.Inthefollowingsecons
Werstanalyzetheonlysemblanceofaframeworkforallocaon
Kellysformula
and
derivefromitinsightsforequityinvesng.
9December2016
Next,wesuggestthatthepowerofallocaonisbestexploitedthrough
FocusedInvesng,
whichessenallyinvolvesplacingsizablebetson1520stockstogenerateexceponal
(ratherthanacceptable)returnsoverthelongterm.
Finally,wediscussthe
4keystosuccessfulFocusedInvesng,
eachfor
1.WhattobuyQGLP
2.HowmuchtobuyCAP
incorporangaframework
(Quality,Growth,LongevityatfavorablePrice),and
(CondenceAdjustedPayo).
2.Kellysformulainsightsforequityinvesng
Lookforasymmetricpayo,Createedge,Betbig
Inthemid1950s,JohnLarryKellyJr,ascienstwithBellLabs,developedaformulaforan
opmalbetsizeonawagerwithgivenpayos(i.e.odds)andwinlossprobabilies.The
formulaisasunder:
f=(bpq)b
where: f isthefraconofthecurrentbankrolltowager,
b isthenetodds(expressedasrupeestobewonforeveryrupeebet)orwinlossrao,
p istheprobabilityofwinning,and
q istheprobabilityoflosing.
Bengthisfraconrepeatedlymaximizesthelongtermgrowthofthebankroll.
Example:
Youareoereda100rupeebetthateverymeacoinistossedandyoucall
headsortailscorrectly,youwillwin200rupees.Youhavesetaside1,000rupees
foraseriesofbets.Whatshouldbeyourbengstrategy?
Here,b(odds)=200100=2.Givenafaircoin,thechancesofcorrectlycalling
headsortailsis1in2i.e.50%.Thus,p(probabilityofwin)is50%andq
(probabilityofloss)is50%.Withthis,theKellyfraconworksoutto25%asunder:
f=(2x0.50.5)2=25%
Thus,youwillbet25%of1,000,i.e.250rupeesinyourrstbet.Thesubsequent
betsizeisdependentontheoutcomeofyourrstbet:
Ifyouwin,yourbankrollgrowsto1,200rupees,andyournextbetsizeshould
be25%of1,200,i.e.300rupees.
Ifyoulose,yourbankrollfallsto900rupees,andyournextbetsizeshouldbe
25%of900,i.e.225rupees.
Foralongenoughseriesofbets,thisstrategywillmaximizethegrowthinyour
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bankroll.
9December2016
2.1Kellysforequies:Themeaningismorerelevantthanthemath
Equityinvesngisstarklydierentfromgamblinginseveralways.
Odds/PayoandWinlossprobabilies:
Ingambling,boththeodds/payoandthewin
lossprobabiliesareagiven.Inmanysituaons,payois1:1andwinlossprobabilityis
0.5:0.5.Incaseslikerouleewherethepayoishigher,theprobabilityofwinisthatmuch
lower.Netnet,winorlossispurelyanoutcomeofluck.
Incontrast,inequityinvesng,neitherpayonorprobabilityisxed.Stockpricesare
known,buteveryinvestorhastoindividuallyesmateupsidedownsideandassociated
probabilies.Investorswithsuperiorknowledge,skillsandprocessescanidenfyfavorable
payowithfavorableprobabiliestowinbig.
Exhibit2
ProcessOutcomematrix:Inequityinvesng,havingagoodprocessreducestheroleofluck
Good
Goodluck
Deservedsuccess
Logicaloutcome
Badluck
OUTCOME
Bad
Bad
Good
PROCESS
Roleofme:
Ingambling,theoutcomeofonesbetwinorlossisinstantaneous.In
equies,thereissignicantmegapbeforeitcanbedecidedwhetherthebetwasawinor
aloss.
Natureofbets:
Ingambling,betsaresequenal.Theoutcomeofonebetcaninuencethe
strategyforthenextbet.Inequies,investorsneedtomakesimultaneousbetsonmulple
stocks.
Giventhesedierences,themathemacalrelevanceofKellyisnotveryhighinequies.And
yet,twovariantsoftheKellysformulaoermeaningfulinsightsforequityinvesng.
2.1.1Insight#1:Lookforasymmetricpayo
OnevariantofKellysformulacanbeobtainedwithasuitablemodicaonofb,i.e.odds.In
gambling,oddsaretypicallyquotedasb:1,i.e.brupeestobewonforevery1rupeebet.In
9December2016
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gambling,ifoneloses,thelossisalways100%oftheamountwagered.Suchisnotthecasein
equies,whereevenifthereisaloss,itisrarely100%(exceptincaseofbankruptcy).
Thus,forequies,itisbeertointerpretbasupsidedownsiderao,say,U/D.Substung
b=U/DinKellysformula,weget:
f=(U/Dxpq)(U/D)
Thissimpliesto:
f=(UpDq)U
where: f isthefraconofthecurrentbankrolltoinvestinastock,
U isthepossibleUpsideinthestock,
p istheprobabilityofsuchUpside,
D isthepossibleDownsideinthestock,and
q istheprobabilityofsuchDownside.
Thisvariantclearlyidenesthefactorsthatshouldinuencestockseleconandallocaon
Upside,Downsideandtheprobabiliesofboth.Themostfavorablesituaoninvestorsshould
lookforis:Asymmetricpayo(highupsidelowdownside)coupledwithhighprobabilityofwin.
2.1.2Insight#2:Createedge
YetanothervariantofKellyisbyauthorWilliamPoundstoneinhisbook,
FortunesFormula
f=edge/odds
where: f isthefraconofthecurrentbankrolltoinvestinastock,
edge =bpqorUpDq,i.e.theexpectedvalueofthenancialproposion,and
odds =borU,i.e.theamountexpectedtowinifonewins.
Thisvariantcanbeinterpretedbothmathemacallyandnonmathemacally.Mathemacally,f
isposiveonlywhenthenumerator(edgeorexpectedvalue)isgreaterthanzero,i.e.noedge,
nobet.Innonmathemacalterms,edgemaybedenedasknowingsomethingthatothers
dont.So,hereagain:noedge,nobet.
Asmarketsarefairlyecient,equityinvestorscanexpecttomakebigmoneyonlyiftheycreate
anedgeoverthemarket.Therearetwosourcesofedge:(1)Informaonadvantage,and(2)
Analycaladvantage.Inmoderndaymarkets,investorsareunlikelytoenjoyanysignicant
informaonadvantage.Hence,themainsourceofcreanganedgeisanalycaladvantage.This
primarilyincludesmetestedframeworks/processesforanalyzingvariousaspectsofbusiness
andvaluaonnatureofindustry,compevelandscape,sizeofopportunity,qualityof
management,channelchecks,earningsforecasts,peervaluaon,etc.
2.1.3Insight#3:Betbig
Wheneverinvestorsgetanedgeinasymmetricpayosituaons,theKellymessageisclear:bet
big.
Suchopportuniesforbigbetscomeseldom;hencetheneedforFocusedInvesng.
9December2016
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Exhibit3 Thepayoedgedecisionmatrix
High
SpeculaveBet
BetBig
Low
NoBet
BetLow
PAYOFF
No
Yes
EDGE
3.WhatisFocusedInvesng?
ThegoldenmeanofDiversiedandConcentratedInvesng
Anextremelyimportantaspectofinvesngisriskreturntradeo.Therearetwocontrasng
investmentstylesaroundthis:(1)Diversiedinvesng,and(2)Concentratedinvesng.
3.1Diversiedinvesng
Theunderlyingstrategyindiversiedinvesngistoholdafairlylargenumberofstocksacross
manysectorssothatunexpectedadversityinanystockorsectordoesnotundulyhurtoverall
porolioperformance.
Intheacveversionofdiversiedinvesng,poroliomanagersconstantlybuyandsellstocks,
aempngtooutperformthebroadermarket,measuredbybenchmarkindicessuchasNiy
50,BSESensex,Niy500,etc.Thisinvolvesahighleveloftransaconandmanagementcosts,
leadingtotheemergenceofanalternaveapproachIndexInvesnginthemid1980s.Here,
poroliomanagersfollowarelavelypassivebuyandholdstrategyoftheverystocksthat
constutethebenchmarkindices.Thecoreideaistoperformbeerthantheacvelymanaged
fundsbykeepingcostsverylow.
modestreturns,
Thenetresultofbothversionsofdiversiedinvesngisthesame
typically
hoveringaroundthemarketaverage.Thus,thefullypowerofequitytodeliverexponenal
returnsremainsunharnessed.
9December2016
Exhibit4 AnnualReturnforMonteCarlosimulaonporoliosinS&PEqualWeightIndex(1999to
2014):Higherthenumberofstocks,lowerthestandarddeviaon,andalsolowerthemaximumreturn
Returns%
Stocksinporolio
All
Average
10
12.0
15
12.1
20
12.1
25
12.1
30
12.1
50
12.2
100
12.2
250Stocks
12.2
12.2
Minimum
Maximum
3.7
21.3
5.4
20.0
5.3
18.7
5.9
17.2
7.5
17.3
8.1
15.8
10.1
14.8
10.7
13.5
12.2
12.2
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12/14/2016
StdDeviaon
2.7
2.2ConcentratedInvesng,
1.9
1.7
Source:
Adaptedfromthebook
1.5
1.2
0.8
0.4
byAllanCBenello,MichaelVanBiemaand
0.0
TobiasCarlisle
3.2Concentratedinvesng
PropagatedbyahandfulofinvestorslikeJohnKeynes,WarrenBue,CharlieMungerandPhil
Fisher,ConcentratedInvesngessenallyinvolveschoosingahandfulofstocks(typicallynot
morethan10)thatareexpectedtoproduceaboveaveragereturns,allocangabulkofthe
poroliotothesestocks,andholdingthemforthelongtermacrossmarketcyclesand
uctuaons.
Concentratedinvestorsbelievethattheirindepthknowledgeofthebusinessestheybuyinto
CommonStocks,UncommonProts,
trulyreducestheriskofowningthem.Inhisbook,
Phil
Fisherwrites,buyingacompanywithoutsucientknowledgeofitmaybeevenmore
dangerousthanhavinginadequatediversicaon.Bueswordsinthisregardare,
Diversicaonservesasaproteconagainstignorance.Ityouwanttomakesurethatnothing
badhappenstoyourelavetothemarket,youshouldowneverything.Thereisnothingwrong
withthat.Itsaperfectlysoundapproachforsomebodywhodoesntknowhowtoanalyze
businesses.
Concentratedinvestorsindeedtendtooutperformthemarketsignicantlyoverthelongterm,
butwithrelavelyhighyeartoyearvolality.
Exhibit5 CharlieMungersperformance
Exhibit6 butBuesperformance(under
suggestssomelevelofannualvolality
%
ReturnS&P500
Alpha
BuePartnerships)isimpeccable
%
Return
Dow
Alpha
1962
1963
30.1
71.7
7.6
20.6
37.7
51.1
1957
1958
9.3
32.2
8.4
38.5
17.7
6.3
1964
1965
49.7
8.4
18.7
14.2
31.0
5.8
1959
1960
20.9
18.6
20.0
6.2
0.9
24.8
1966
1967
12.4
56.2
15.8
19.0
28.2
37.2
1961
1962
35.9
11.9
22.4
7.6
13.5
19.5
1968
40.4
7.7
32.7
1963
30.5
20.6
9.9
1969
1970
28.3
0.1
11.6
8.7
39.9
8.8
1964
1965
22.3
36.9
18.7
14.2
3.6
22.7
1971
25.4
9.8
15.6
1966
16.8
15.6
32.4
1972
1973
8.3
31.9
18.2
13.1
9.9
18.8
1967
1968
28.4
45.6
19.0
7.7
9.4
37.9
1974
31.5
23.1
8.4
CAGR
25.3
4.9
20.4
1975
73.2
44.4
28.8
Source:Buesleerstopartners
CAGR
19.8
4.9
14.9
Source:Adaptedfromthebook,ConcentratedInvesng
9December2016
10
3.3Diversiedv/sConcentratedInvesngandthenatureofcapital
Thenatureofcapitalbeingmanagedseemstobeakeydeterminantastowhichofthetwo
stylesofinvesngwillbepracced.Publicmoney,largelyintheformofopenendedmutual
funds,tendstobemanagedbasedonaDiversiedInvesngstrategy,whereasConcentrated
Invesngseemsbeersuitedforprivate/closeendedsourceofcapital.
Theobviousreasonisthatpublicmoneytendstobeckleandguidedmorebyshortterm
performance.Anopenendedmutualfundwithapoorshorttermperformancefacesthevery
realprospectofarunonitsassets.This,inturn,makessuchporoliomanagersaversetoshort
termvolalitythattypicallyaccompaniesconcentratedstockposionstheyseleforsafer
butlowerreturns,instead.
3.4FocusedInvesng:Thegoldenmean
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12/14/2016
WepositFocusedInvesngasthegoldenmeanoftheabovetwoinvestmentstyles.Compared
to50+stocksunderDiversiedInvesngand10orfewerstocksunderConcentratedInvesng,
werecommendafocusedporolioof1520stocks.Thisoersthebestofbothworlds
adequateriskdiversicaonandmeaningfulreturnmagnicaon.
Ontheriskfront,severalstudieshaveestablishedthatcompanyspecicrisksaresuciently
diversiedbyowning1520stocksacrosssectors(depictedinExhibit6).Addionalprudent
allocaonnorms(e.g.nothavingmorethan10%underanysinglestock)canfurtherreduce
volalityofperformance.
Exhibit7 1520stocksfromacrosssectorsaresucienttonearfullydiversifycompanyspecicrisks
Total
Focused
Invesng
Companyspecicrisk
Risk
Systemac/Marketrisk
No.ofstocks
Onthereturnfront,havingonly1520businessesallowsmeaningfulallocaonsinhigh
conviconstockideas,magnifyingoverallporolioreturn.Aninteresng2012studyintheUS
showedthatporoliosconsisngofonlythehighconviconbetsoffundmanagers
outperformedtheveryfundfromwhichtheywerederived,andthattoowithoutsignicantly
higherrisk/volality.
9December2016
11
Exhibit8 Poroliosofhighconviconstocksoutperformed
theveryporoliosfromwhichtheywerecarvedout
Porolios
Return%*
StdDev.%
Top5
10.8
26.3
Top10
9.4
23.4
Top15
8.7
21.8
Top20
8.1
20.7
Top25
7.8
19.8
Top30
7.4
19.1
AllFunds
6.3
19.5
5.1
20.0
OwnIndex
*1999to2009
Source:Workingpaper
DiversicaonversusConcentraonandtheWinneris?
(Yeungetal2012)
3.5Diversiedv/sFocusedInvesngTheIndianscenario
TheIndianmutualfundindustryhasabout286schemesacvelymanagingINR4trillionin
assets.Diversiedinvesngisclearlythedominantstyle.Ahigh56%oftheschemesandan
evenhigher86%ofassetsareunderporolioswith41+stocks.Incontrast,only13%ofthe
schemesand3%oftheassetsareunderporoliosof25stocksorfewer.
12/40
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Exhibit9
Only36Focusedporolios.
No.ofmutualfundschemesTotal286
Exhibit10
managingINR139billion
AUMTotalINR4trillion
Upto25stocks
13%
41+stocks
56%
Upto25stocks
3%
41+stocks
84%
2640stocks
31%
2640stocks
13%
Source:BasedonmutualfunddatafromICRAOnline
4.FourkeystosuccessfulFocusedInvesng
Poroliogoal,Selecon,Allocaon,Monitoring&Improvement
Webelievethereare4keystosuccessfulFocusedInvesng:
1.Clearporoliogoal,
2.Superiorstockselecon,
3.Raonalallocaon,and
4.Acvemonitoringandimprovement.
Wediscussthesebelow,incorporangaframeworkeachfor
WhattobuyQGLP
HowmuchtobuyCAP
(Quality,Growth,LongevityatfavorablePrice),and
(CondenceAdjustedPayo).
9December2016
12
4.1Clearporoliogoal
Webelievesengasimple,clearandmeasurableporoliogoalshouldbethestarngpointof
anyinvesngprocess.Aporoliogoalcanbeexpressedintermsofabsoluteperformanceor
relavetoasuitablebenchmark.ForFocusedInvesng,anabsoluteperformancegoalis
preferred.Theporoliogoalwillserveasausefulguidepostforbothstockseleconandstock
allocaon.
4.2SuperiorstockseleconQGLP
Havingdecidedontheporoliogoal,thenextstepissuperiorstockselecon.InFocused
Invesng,thisisofutmostimportance,asinaporolioof1520stocks,averageallocaonin
eachstockismeaningfulenoughtoinuenceporolioperformance.So,investorsarebeero
usingametestedinvestmentphilosophy/processofstockselecon.Theendobjecveisto
Findasymmetricpayo(i.e.highupsidepotenalwithlowdownsiderisk),
Createedge(i.e.haveaninformaonand/oranalycaladvantageoverthemarket),
Meetporoliogoal,and
Diversifyrisk(i.e.selectstocksfromdierentsectors,nothighlycorrelatedtoeachother).
Formostselecons,werecommendaphilosophycapturedbytheacronym
Q QualityofbusinessandQualityofmanagement,
QGLP
G Growthinearnings,
L LongevityofQuality&Growth,and
P favorablePriceofpurchase.
4.2.1Q=QualityofbusinessxQualityofmanagement
ExpressingQualityasaproductimpliesthatifeitherQualityofBusinessorQualityof
Managementiszero,overallQendsupaszero.
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12/14/2016
Exhibit11
KeyindicatorsofQ
QualityofBusiness
QualityofManagement
Unquesonableintegrity
Preferablysecularbusiness
Largeprotpool
Impeccablecorporategovernance
Sizeofopportunity
Concernforallstakeholders
Compevelandscape
Preferablypayingfulltaxand
awellarculateddividendpolicy
Monopoly,Oligopoly
Dominantmarketshare
Niche/Strategicopportunity
Favorabledemandsupply
(especiallyincaseofcommodies)
RoEandRoCE
OperangcashowandFreecashow
Demonstrablecompetence
Excellenceinstrategy&execuon
Sustainingcompeveadvantage
Growthmindset
Longrangeprotoutlook
Ecientcapitalallocaon
ClearingtheQualityltersignicantlylowersriskofpermanentcapitalloss.
9December2016
13
4.2.2G=Growthinearnings
Growthinearningsisakeydriverofvalueinastock.However,growthisuniquetoeach
company,andhence,doesnotyielditselftoanystandardframeworks.Certainfavorablehigh
growthsituaonsinclude
ExponenalopportunityindiscreonaryexpenditureamidstlineargrowthinGDP
ValueMigraon(fromoutdatedbusinessmodelstonewones,e.g.wiredtelephonyto
wireless)
Sustainedindustrytailwind
Smallbasewithlargeopportunity
Newlargeinvestmentgengcommissioned
InorganicgrowththroughM&A
Consolidaonofcompeon
Operang&Financialleverage
Turnaroundfromlosstoprot
4.2.3L=LongevityofQuality&Growth
AsFocusedInvesngisessenallyabuyandholdstrategy,selectedstocksshouldideally
sustaintheirqualityandgrowthforalongmeintothefuture.
4.2.4P=Price(favorable)
AthoroughanalysisofQGLwilllikelygiveinvestorsanedgeintermsofunderstandingthe
companysbusiness,managementanditsearningsgrowthprospects.However,itisvaluaon
analysisthatwillnallyhelpinvestorsdeterminewhetherthestockmeetstheporoliogoal,
anddecidewhetheritmeritsselecon.
4.3RaonalallocaonCAP
Havingselected1520stocks,mostofwhichmeettheporoliogoal,thenextstepisraonal
allocaonofthesameinaporolio.Thegoverningprincipleshereare
Betbigwhenoddsarestronglyinfavor,andatthesameme,
Increasethecertaintyofachievingtheporoliogoal.
Toachieveboththeseobjecves,wesuggesttheframework
CAP(CondenceAdjusted
14/40
12/14/2016
Payo). ThisframeworkdrawsinspiraonfromtheallocaonmethodologypursuedbyWarren
BueinmanagingtheinvestmentporolioatBuePartnershipsduringthe1960s.Hesays,
Thequesonalwaysis,HowmuchdoIputinnumberone(rankedbyexpectaonofrelave
performance)andhowmuchdoIputinnumbereight?"(seeAnnexureforafullerextractfrom
his1966leertopartnersondiversicaonandallocaon).
ThestepsforCAPbasedallocaonare:
Rankalltheselectedstocksindescendingorderoftheirexpected3or5yearupside.
Tothisupside,applyaCondencefactorrangefrom0to100%.Themainideabehindthe
Condencefactoristodeatetheexpectedupsideforrisksthatmaynothavebeen
explicitlycapturedintheupsidecalculaons.(Note:IftheCondencefactorisverylow,
perhapstheveryseleconmayneedtobequesoned.)
Foreachstock,arriveatCondenceAdjustedPayo(CAP)i.e.UpsidexCondencefactor.
RankthestocksindescendingorderofCAP,andalignthenalallocaon.
9December2016
14
ThemoreaccuratetheassessmentofCAP,thehigherwillbetheporolioperformancebased
onthisallocaon,ratherthananyother(e.g.equalweight).
Addionalnormscouldinclude
nothavinganystockwithallocaonmorethan10%oftheporoliovalue
nothavinganystockwithallocaonlessthan3%oftheporoliovalue
nothavingmorethan5%equityofanycompany
4.4Acvemonitoring&improvement
Havingconstructedtheporolio,thenextstepisacvemonitoringandimprovement.Thisis
veryimportant,asoddsonstockschangefrequentlyduetochangeinunderlyingfundamentals,
orstockprice,orboth.
Monitoringandimprovementincludesseveralthingssuchas
esmangquarterlyandannualearningsforcompaniesintheporolioandreviewingthe
actualsvisvisesmatestoascertainwhethertheoriginalinvestmentthesisisontrack
stayingupdatedonthelatestdevelopmentsinthecompanyandsector,includingperiodic
interaconwithcompanymanagement
maintainingcorroboraveevidenceonthecompanywhereverpossible,e.g.viainteracons
withcompetors,dealers,customers,suppliers,exemployees,etc
watchingoutforirraonalstockpricemovements,upordown,andanappropriateacon
planforsuchcases
constantsearchforinvestmentideasthatmaybesuperiortotheonescurrentlyheld.
4.5Commonmistakesofallocaon
Thethreecommonmistakesofallocaontobeavoidedare:(1)overallocaon,(2)under
allocaon,and(3)overstayingwithwinnersandlosers.Thesemistakescanbeassociatedwith
commonpsychological/behavioralbiasesasshownbelow.
Exhibit12
Allocaonmistakescanbetracedtopsychological/behavioralbiases
Allocaonmistake
Underallocaon
Associatedbiases
Riskaversion:
Peopleprefertoavoidorminimizeuncertainty,
evenatthecostoflowerpayo.
Overallocaon
Overcondencebias:
Peopleingeneraloveresmatetheir
knowledgeandskills.
Conrmaonbias:
Peopletendtosearchforandinterpret
informaoninawaythatconrmsone'spreexisngbeliefsor
hypotheses,whiledisregardingcontraryinformaonand
alternavepossibilies.
Boththesebiasescombinedareapotentrecipeforoverallocaon.
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12/14/2016
Overstayingwithwinners
Ownershipbias:
Simplystated,thisisthetendencyto
overvaluewhatyouownsimplybecauseyouownit.
Overstayingwithlosers
Lossaversion:
Peoplefeeltwiceasbadaboutlosingmoneyas
theyfeelaboutwinningit.Thiscausesinvestorstoholdonto
badchoicesfartoolong,hopingthatthingswilleventually
improveandthelosswillbeavoided.
9December2016
15
5.Summary&conclusions
AdoptFocusedInvesngforexceponalratherthanacceptablereturns
Inclosing,wehighlightthefollowingpointsfromthethemestudy
Theprimefocusofmostinvestorsisstockselecon.Inthis,thepowerofstockallocaonto
enhanceporolioperformanceremainsuntapped.
Kellysformulaoersasemblanceofaframeworkforporoliosizing.However,itissuited
forgamblingsituaonswherepayosandprobabiliesareagiven.Forequityinvesng,the
takeawaysfromanalyzingKellyare
1.Lookforstockswithasymmetricpayoi.e.highupsidepotenalwithlowdownsiderisk
2.Createedgei.e.haveaninformaonand/oranalycaladvantageoverthemarket
3.Whenboth(1)and(2)coincide,betbig.
Asstocksmarketsarefairlyecient,opportuniesforsuchbigbetscomeseldom.Focused
invesngisasoundstrategytocapitalizeontheseopportunies.Byinvesngin1520
stockswithstronglyfavorableodds,investorscanenjoythegoldenmeanofrisk
diversicaonandreturnmagnicaon.
Webelievethereare4keystosuccessfulFocusedInvesng:
1.
Clearporoliogoal,whichsetsaguidepostforbothstockseleconandallocaon
2.
3.
4.
Superiorstockseleconbasedonametestedinvestmentphilosophyorprocess
Raonalallocaon
Acvemonitoringandimprovement.
Disciplinedpracceoftheaboveshouldleadtoexceponalreturnsratherthanacceptable
returns.
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9December2016
16
ANNEXURE:WarrenBueondiversicaonandallocaon
(extractfromleerdated20January1966topartnersinBuePartnershipLimited;
keyseconsarehighlightedinboldbyus)
Diversicaon
Lastyearincommenngontheinabilityoftheoverwhelmingmajorityofinvestmentmanagers
toachieveperformancesuperiortothatofpurechance,Iascribeditprimarilytotheproductof:
"(1)groupdecisionsmyperhapsjaundicedviewisthatitisclosetoimpossibleforoutstanding
investmentmanagementtocomefromagroupofanysizewithallparesreallyparcipangin
decisions;(2)adesiretoconformtothepoliciesand(toanextent)theporoliosofotherlarge
wellregardedorganizaons;(3)aninstuonalframeworkwherebyaverageis"safe"andthe
personalrewardsforindependentaconareinnowaycommensuratewiththegeneralrisk
aachedtosuchacon;(4)anadherencetocertaindiversicaonpracceswhichare
irraonal;andnallyandimportantly,(5)inera.
ThisyearinthematerialwhichwentoutinNovember,Ispecicallycalledyouraenontoa
newGroundRulereading,
7. Wediversifysubstanallylessthanmostinvestment
operaons.Wemightinvestupto40%ofournetworthinasinglesecurityundercondions
couplinganextremelyhighprobabilitythatourfactsandreasoningarecorrectwithavery
lowprobabilitythatanythingcoulddrascallychangetheunderlyingvalueofthe
investment.
Weareobviouslyfollowingapolicyregardingdiversicaonwhichdiersmarkedlyfromthatof
praccallyallpublicinvestmentoperaons.Frankly,thereisnothingIwouldlikebeerthanto
have50dierentinvestmentopportunies,allofwhichhaveamathemacalexpectaon(this
termreectstherangeofallpossiblerelaveperformances,includingnegaveones,adjusted
fortheprobabilityofeachnoyawning,please)ofachievingperformancesurpassingtheDow
by,say,15percentagepointsperannum.Ifthe50individualexpectaonswerenot
intercorelated(whathappenstooneisassociatedwithwhathappenstotheother)Icouldput
2%ofourcapitalintoeachoneandsitbackwithaveryhighdegreeofcertaintythatouroverall
resultswouldbeveryclosetosucha15percentagepointadvantage.
Itdoesn'tworkthatway.
Wehavetoworkextremelyhardtondjustaveryfewaracveinvestmentsituaons.Sucha
situaonbydenionisonewheremyexpectaon(denedasabove)ofperformanceis
atleast10percentagepointsperannumsuperiortotheDow.
Amongthefewwedond,the
expectaonsvarysubstanally.Thequesonalwaysis,HowmuchdoIputinnumberone
(rankedbyexpectaonofrelaveperformance)andhowmuchdoIputinnumbereight?"This
dependstoagreatdegreeonthewidenessofthespreadbetweenthemathemacal
expectaonofnumberoneversusnumbereight.Italsodependsupontheprobabilitythat
numberonecouldturninareallypoorrelaveperformance.
Twosecuriescouldhaveequal
mathemacalexpectaons,butonemighthave.05chanceofperforming15percentage
pointsormoreworsethantheDow,andthesecondmighthaveonly.01chanceofsuch
performance.Thewiderrangeofexpectaonintherstcasereducesthedesirabilityof
heavyconcentraoninit.
9December2016
17
17/40
12/14/2016
Theabovemaymakethewholeoperaonsoundveryprecise.Itisn't.Nevertheless,our
businessisthatofascertainingfactsandthenapplyingexperienceandreasontosuchfactsto
reachexpectaons.Impreciseandemoonallyinuencedasouraemptsmaybe,thatiswhat
thebusinessisallabout.Theresultsofmanyyearsofdecisionmakinginsecurieswill
demonstratehowwellyouaredoingonmakingsuchcalculaonswhetheryouconsciously
realizeyouaremakingthecalculaonsornot.Ibelievetheinvestoroperatesatadisnct
advantagewhenheisawareofwhatpathhisthoughtprocessisfollowing.
ThereisonethingofwhichIcanassureyou.
Ifgoodperformanceofthefundisevenaminor
objecve,anyporolioencompassingonehundredstocks(whetherthemanagerishandling
onethousanddollarsoronebilliondollars)isnotbeingoperatedlogically.Theaddionofthe
onehundredthstocksimplycan'treducethepotenalvarianceinporolioperformance
sucientlytocompensateforthenegaveeectitsinclusionhasontheoverallporolio
expectaon.
Anyoneowningsuchnumbersofsecuriesaerpresumablystudyingtheirinvestmentmerit
(andIdon'tcarehowpresgioustheirlabels)isfollowingwhatIcallthe
NoahSchoolof
Invesngtwoofeverything.
Suchinvestorsshouldbepilongarks.WhileNoahmayhave
beenacnginaccordwithcertainmetestedbiologicalprinciples,theinvestorshavelethe
trackregardingmathemacalprinciples.(Ionlymadeitthroughplanegeometry,butwithone
excepon,IhavecarefullyscreenedoutthemathemaciansfromourPartnership.)
Ofcourse,thefactthatsomeoneelseisbehavingillogicallyinowningonehundredsecuries
doesn'tproveourcase.Whiletheymaybewronginoverdiversifying,wehavetoarmavely
reasonthroughaproperdiversicaonpolicyintermsofourobjecves.
Theopmumporoliodependsonthevariousexpectaonsofchoicesavailableandthedegree
ofvarianceinperformancewhichistolerable.Thegreaterthenumberofselecons,theless
willbetheaverageyeartoyearvariaoninactualversusexpectedresults.Also,thelowerwill
betheexpectedresults,assumingdierentchoiceshavedierentexpectaonsofperformance.
Iamwillingtogiveupquiteabitintermsoflevelingofyeartoyearresults(rememberwhenI
talkofresults,IamtalkingofperformancerelavetotheDow)inordertoachievebeer
overalllongtermperformance.Simplystated,thismeans
Iamwillingtoconcentratequite
heavilyinwhatIbelievetobethebestinvestmentopportuniesrecognizingverywellthat
thismaycauseanoccasionalverysouryearonesomewhatmoresour,probably,thanifI
haddiversiedmore.
Whilethismeansourresultswillbouncearoundmore,Ithinkitalso
meansthatourlongtermmarginofsuperiorityshouldbegreater.
9December2016
18
SpaceforNotes
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9December2016
19
19/40
12/14/2016
201116Wealth
CreaonStudy:
Detailedndings
9December2016
20
#1
TrendinWealthCreaon
INR28.4trillionWealthCreatedduring201116
Thetop100WealthCreatorscreatedINR28.4trillionofwealthduring201116.
ThisisthethirdhighesteverquantumofWealthCreated.
PaceofWealthCreaonishighlycorrelatedtomarketreturns.During201116,paceof
WealthCreaonwasrelavelyslowerat18%CAGRgivenmutedmarketCAGRof5%.
Exhibit1 During201116,WealthCreatedishighdespitemutedmarketperformance
WealthCreatedTrend
(INRtrillion)
34.2
29.4
26.5
25.4
28.4
22.1
14.3
16.3
16.2
18.4
9.7
20/40
12/14/2016
Exhibit2 201116paceofWealthCreaonlowerinlinewithmarketcondions
(39%)
(30%)
(26%)
PaceofWealthCreaon
(FiguresinbracketsisSensexCAGR)
49%
40%
(18%)
36%
33%
(22%)
26%
(12%)
(12%)
19%
17%
(6%)
19%
(10%)
25%
(4%)
(5%)
18%
17%
KeyTakeaway
Forgetmarkets,thinkstocks
TheabovedataprovesthatWealthCreaonhappensinallkindsofmarketcondions.So,
investorsarebeerofocusingonwhichstockstoinvestin,ratherthanmingthemarkets.
9December2016
21
#2
TheBiggestWealthCreators
TCSistheBiggestWealthCreatorforthefourthmeinarow
TCS hasemergedasthebiggestWealthCreatorfortheperiod201116,retainingthetop
spotitheldeveninthepreviousthreestudyperiods(201015,200914and200813).
HDFCBank hasincheduptoNo.2aer3yearsofremainingNo.3.
HindustanUnilever and ITC bothclockedPATCAGRof14%.However,theformerhas
pushedbackITCtoNo.4onthebackofmassive50%stockrerangfrom30xto46x.
8ofthetop10WealthCreatorsarethesameasoflastyear.
MaruSuzuki haveenteredthetop10displacing
KotakMahindraBank
and
AxisBank and TataMotors.
Exhibit3 Top10BiggestWealthCreators
RankCompany
WealthCreated
CAGR(%)
RoE(%)
20162011
37
37
2HDFCBank
1,475
18
26
21
27
17
16
3Hind.Unilever
1,266
25
14
46
30
102
76
4ITC
1,197
13
14
28
28
28
30
5SunPharma
1,169
30
24
38
26
16
19
6Infosys
948
15
20
27
24
26
7HCLTech
819
28
27
21
20
20
21
8KotakMahindra
760
24
17
36
21
10
14
9MaruSuzuki
742
24
14
25
16
17
16
682
10
18
17
23
20
21
11,695
41
18
19
24
25
23
24
TotalofTop10
PAT
22
P/E(x)
1TCS
10HDFC
Price
16
20162011
21
26
INRb%share
2,637
9
21/40
12/14/2016
TotalofTop100
28,436
100
19
16
22
19
20
22
Exhibit4 TCSisthebiggestWealthCreatorforthefourthyearinarow
TopWealthCreatorsovertheyears
TCS(4)
(INRb)
3,638
RelianceIndustries(5)
3,077
2,637
2,556
ONGC(3)
HindustanUnilever
(HUL)(4)
9173
Wipro
1,247
HUL
1,678
1,065
1,030
Wipro
(2)
1,856
2,284
1,742
1,514
3,458
ITC
1,187
377 383245
262341
KeyTakeaway
HDFCBankpersistentlyrisingupthecharts
HDFCBankisclimbinguptherankchartspurelyledbyearningsgrowth.Infact,during2011
16,itsP/Eactuallyfellfrom27xto21x.Inthelast3studies,TCSsWealthCreatedhasfallen
fromINR3.6trilliontoINR2.6trillion.Incontrast,HDFCBanksWealthCreatedisupfrom
INR1.3trilliontoINR1.5trillion.
9December2016
22
#3
TheFastestWealthCreators
AjantaPharmaistheFastestWealthCreatoragain
AjantaPharma
hasemergedastheFastestWealthCreatorforthesecondmeinarow,
with201116stockpricemulplierof53x(121%CAGR).
EicherMotors isamongthetop10FastestWealthCreatorsforthelast5studies.
Except Welspun whichisvirtuallyaturnaroundcase,alltheother9FastestWealthCreators
haveseenmassiveP/Ererangonthebackofhyperearningsgrowth.
Thebase2011marketcapof7stockswaslessthanINR20billion,including6ofthemin
singledigitbillion.
Exhibit5 Top10FastestWealthCreators(201116)
RankCompany
PriceAppn.
(x)
CAGR(%)
Price
PAT
MktCap(INRb)
2016
2011
P/E(x)
2016
2011
AjantaPharma
53
121
52
124
31
WelspunIndia
23
88
234
100
14
226
EicherMotors
14
70
48
520
36
42
20
KajariaCeramics
13
66
30
76
33
Vakrangee
11
63
52
105
27
17
BajajFinance
10
59
39
373
26
29
10
PIIndustries
10
58
37
78
25
10
Symphony
56
15
83
77
17
AmaraRajaBaeries
56
27
150
16
31
11
AurobindoPharma
50
28
436
57
22
10
10
Exhibit6 HistoryofFastestWealthCreators(5yearPricemulplier,x)
837
665
22/40
12/14/2016
223
75
30
136
182
66695075
23
54
50
28
50
242827
53
KeyTakeaway
Smallsize+Scalability+Soundmanagement=SuperiorWealthCreaon
AlltheFastestWealthCreatorsweresmallinthebaseyear(i.e.2011)andoperanginalarge
sector(e.g.pharmaceucals,nance,autos)orscalableniche(aircoolers,ceramicles).
Underasoundmanagement,suchcompaniesareabletoclockascorchingpaceofearnings
growth.Thisinturnalsodrivesupvaluaons,leadingtosuperiorWealthCreaon.
9December2016
23
#4
TheMostConsistentWealthCreators
AsianPaintsistheMostConsistentWealthCreator
AsianPaints
istheMostConsistentWealthCreatoroverthe10yearperiod200616,
byvirtueof
3.Appearingamongtop100WealthCreatorsineachofthelast10studies;and
4.Highest10yearPriceCAGRof30%.
8ofthetop10MostConsistentWealthCreatorsareconsumerfacingcompanies,with
Bosch and CumminsIndia theonlyexcepons.
Exhibit7 Top10MostConsistentWealthCreators
Rank
Company
Appearedin10yrPrice10yrPAT
P/E(x)
RoE(%)
WCStudy(x)CAGR(%)CAGR(%)
20162006
20162006
AsianPaints
10
30
23
48
29
31
31
KotakMahindra
10
26
23
36
20
10
24
SunPharma
10
25
25
38
30
16
41
TitanCompany
10
23
24
44
45
20
47
Bosch
10
22
14
53
27
15
24
HDFCBank
10
21
31
21
28
17
16
AxisBank
10
20
33
13
20
16
18
DaburIndia
10
20
19
36
32
30
49
NestleIndia
10
17
11
63
29
32
92
CumminsIndia
10
17
15
32
26
22
23
10
Exhibit8 ConsumerfacingcompaniesmorelikelytobeConsistentWealthCreators
ConsistentWealthCreatorsbasedonlast5Studies
Consumerfacing
Consumer&
Healthcare
AsianPaints(5)
ITC(2)
Nestle(3)
SunPharma(5)
Auto
HeroMoto(1)
M&M(3)
NonConsumerfacing
Financials
AxisBank(4)
HDFC(2)
HDFCBank(4)
KotakMah.(5)
ACC(1)
Ambuja(1)
Bosch(4)
Hind.Zinc(2)
Infosys(1)
Cummins(2)
Siemens(1)
23/40
12/14/2016
Dabur(2)
Titan(2)
NOTE: Bracketindicatesnumberofmesappearedwithintop10inlast5WealthCreaonStudies
KeyTakeaway
Strongdiscreonarybrand=ConsistentWealthCreaon
Strongbrandsinbasicgoods(e.g.Colgate)failtofeatureamongConsistentWealthCreators
giventhemissingelementofgrowth.Incontrast,discreonarybrandslikeAsianPaintsenjoy
steadygrowth,translangtoConsistentWealthCreaon,fairlyagnosctopurchaseprice.
9December2016
24
#5
WealthCreatorsIndex(Wealthex)v/sBSESensex
Superiorearningsandpriceperformanceoverbenchmark
WecompareWealthex(top100WealthCreatorsMarketCapindex)withtheBSESensexon3
parameters(1)marketperformance,(2)earningsgrowthand(3)valuaon.
Marketperformance:
Over201116,WealthCreangcompanieshavedeliveredreturn
CAGRof19%v/s5%fortheBSESensex.March2016overMarch2011,Wealthexisup140%
whereastheSensexisup30%i.e.110%outperformanceover5years.
Earningsgrowth:
Wealthexclocked5yearearningsCAGRof13%v/s5%forBSESensex.
Further,YoYearningsgrowthforWealthexishigherforeveryyearexcept2011.
Valuaon: WealthexP/EhasseenamarginalrerangvisvistheSensex.Thus,the14pp
outperformanceofWealthexisexplainedlargelybythe8pphigherearningsCAGR.
Exhibit9 Wealthexv/sSensex:Superiormarketperformanceonthebackofhigherearningsgrowth
BSESensex
Mar11
Mar12
Mar13
Mar14
Mar15
Mar16
19,445
17,404
18,836
22,386
27,957
25,342
10
YoY(%)
WealthexbasedtoSensex
19,445
YoY(%)
SensexEPS(INR)
1,024
25,455
1,120
YoY(%)
19
31,956
25
47,123
9
46,573
10
19
26
47
1,120
1,181
1,337
1,356
1,330
13
YoY(%)
WealthexEPS(INR)
21,323
1,147
5Year
CAGR(%)
5
1,376
1,580
1,840
2,084
20
15
16
13
19
5
13
SensexPE(x)
19
16
16
17
21
19
WealthexPE(x)
17
19
19
20
26
22
Exhibit10 Wealthexinvariablyoutperformsbenchmarkindiceshandsomely
300
WealthexRebased
SensexRebased
250
200
110%Outperformance
150
100
50
KeyTakeaway
WhatnottobuyisasimportantasWhattobuy
Ofthe30Sensexstocksin2011,asmanyas18underperformedoverthenext5years,down
24/40
12/14/2016
anaverage12%CAGR.Ifaninvestorhadavoidedtheseandonlyboughttheremaining12,the
averagereturnCAGRwouldbe14%,handsomelyhigherthantheSensexs5%.
9December2016
25
#6
WealthCreaon:Sectoranalysis
Consumer/RetailisthebiggestWealthCreangsectoragain
Consumer/Retail
hasemergedasIndiasbiggestWealthCreangsectorforthesecond
consecuveme,andthethirdmeinthelastfouryears.
Deepcyclicals(Metals/Mining,
Oil&Gas,CapitalGoods)
havesignicantlylostoutto
secularandquasisecularsectors.
WealthCreaonwashighlyconcentrated
top5sectorsaccountedfor74%ofWealth
Creatorsand85%ofWealthCreated.
Exhibit11 Consumer/RetailisthetopWealthCreangsector
Sector
WCShareofWC%CAGR1116(%)
(Noofcompanies)
P/E(x)
RoE(%)
(INRb)
2016
2011
Price
PAT
2016
2011
2016
2011
Consumer/Retail(23)
Banking/Finance(14)
6,364
4,995
22
18
8
24
21
20
15
19
38
19
30
18
31
16
32
19
Technology(7)
Auto(15)
4,960
4,093
17
14
14
5
16
20
20
10
20
20
24
13
28
19
29
32
Healthcare(15)
3,705
13
25
18
30
22
18
18
Cement(5)
1,266
20
35
16
14
Oil&Gas(3)
670
14
21
26
10
27
14
CapitalGoods(4)
Telecom&Media(2)
Metals/Mining(2)
513
394
289
2
1
1
7
3
15
16
17
7
11
19
7
33
21
11
26
23
12
17
13
16
18
10
17
Ulity(1)
Others(9)
203
984
1
3
3
3
9
21
18
17
12
25
18
21
14
19
12
19
28,436
100
100
19
16
22
19
20
22
Total
Exhibit12 Consumer/Retail:BiggestWealthCreatorforthesecondconsecuveme(INRb)
7,103
7,586
6,364
5,826
4,949
5,194
4,456
3,891
3,672
2,723
2,126
Oil&
Gas
Oil&
Gas
Oil&
Gas
Oil&
Gas
Metals/
Mining
Finan
cials
2006
2007
2008
2009
2010
2011
FinanConsumerTechnoConsumerConsumer
cials
&Retail
logy
&Retail&Retail
2012
2013
2014
2015
2016
KeyTakeaway
ValueMigraonisincreasinglybecomingthekeydriverofrapidWealthCreaon
Threeofthetop5WealthCreangsectorsFinancials,TechnologyandHealthcareare
beneciariesofValueMigraoni.e.owofvaluefromoutmodedbusinessdesignstonew
businessdesigns.InFinancials,valueismigrangfrompublicsectorbankstoprivatebanks.In
TechnologyandHealthcare,valueismigrangfromdevelopedworldtoemergingmarkets.
9December2016
26
25/40
12/14/2016
#7
WealthCreaon:OwnershipPrivatev/sPSU
PSUsremaininsignicantinWealthCreaon
PSUs(publicsectorundertakings)WealthCreaonperformanceconnuestobedismal
during201116:
ThenumberofPSUsinthetop100WealthCreatorsisonly7.
WealthCreatedbythese7PSUsis4%,marginallyhigherthantheprevioustwostudies.
The7WealthCreangPSUsare
BPCL,HPCL,PetronetLNG,Concor,LICHousing,Bharat
Electronics and PowerGridCorporaon.

AveragePriceCAGRofPSUWealthCreatorsis15%v/s19%forprivatesectorcounterparts.
Exhibit13 PSUsremaininsignicantinWealthCreaon
51
No.ofPSUs
36
35
30
27
25
%WealthCreated
27
20
9
30
26
18
25
16
22
24
20
11
7
4
Exhibit14 RobustPATCAGRof20%isthekey
Exhibit15 3ofthe7PSUWealthCreatorsare
driverofWealthCreaonforthe7PSUs
fromOil&Gas(BPCL,HPCL,PetronetLNG)
20112016
PSU
7
Private
93
96
5yearSalesCAGR(%)
18
5yearPATCAGR(%)
20
16
5yearPriceCAGR(%)
15
19
P/E2011(x)
13
20
P/E2016(x)
11
24
RoE2011(%)
14
23
RoE2016(%)
20
20
No.ofWealthCreatorsinTop100
ShareofWealthCreated(%)
Capital
Goods
13%
Ulies
16%
Others
7%
Financials
10%
Oil&Gas
54%
KeyTakeaway
CanindustrialrecoveryandgovernmentfocusleadtomeanreversionforPSUs?
FortunesofmanyPSUshingeonperformanceoftheeconomy,especiallytheindustrialsector
CoalIndia,BHEL,SBI,SAIL,etc.MeasurestoboostindustrialrecoveryMakeinIndia,rate
cutsbodewellforthefortunesofsuchPSUs.Further,thegovernmenttooisfocusedon
revivingPSUse.g.mergerofSBIassociatebanks.These,coupledwithlowvaluaonsofPSUs,
holdthepotenaltotriggermeanreversioninWealthCreaonbyPSUs.
9December2016
27
#8
WealthCreaon:MarketCapRankAnalysis
26/40
12/14/2016
Inour2015WealthCreaonStudy,wecalledlarge,midandsmallcapstocksas
Mega,Mid and
Mini, denedasunder:
Mega
Mid
Mini
Top100stocksbymarketcaprankforanygivenyear
Next200stocksbymarketcaprank
Allstocksbelowthetop300ranks.
Marketcapranksofcompanieschangeconstantly.Overme,companiesalsocrossoverfrom
onecategorytoanother.Fortheperiod201116,themarketcapcrossovermatrixstandsas
under
Exhibit16 201116:Marketcapcrossovers:No.ofcompaniesandaveragereturns
FROM(in2011)
Mini
Mid
Mega
New
Demerger
TOTAL
26
71
100
31%
8%
19
200
711
3,278
TO(in2016)
Mega
AvgReturn
Mid
AvgReturn
Mini
67
88
25
39%
9%
16%
2,479
84
AvgReturn
1%
20%
32%
Delisted,
Demerger,etc
397
400
2,943
200
100
735
3,978
2%
0%
1%
TOTAL
AvgReturn
9December2016
28
Weanalyzedthe3posivecrossovers
1.MinitoMega
2.MinitoMidand
3.MidtoMega.
8.1MinitoMega:Nocompanies
During201116,therewasnocompanywhichmovedfromMinitoMega.
8.2MinitoMid:67companies,39%averagePriceCAGR
27/40
12/14/2016
During201116,67companiescrossedoverfromMinitoMidcategory,generangan
averagereturnCAGRof39%,v/s5%fortheSensex.
Ofthese67MinitoMidstocks,15featureinourlistof100BiggestWealthCreators.
7ofthetop10fastestWealthCreatorsarefeaturedinthelist.
Exhibit17 MinitoMid(201116):15of67MinitoMidstocksfeatureamongtop100WealthCreators
MktCapRank
Price
WCRank
AjantaPharma
WelspunIndia
2016
127
153
2011
910
728
CAGR%
121
88
KajariaCeramics
Vakrangee
190
148
606
520
66
63
100
83
PIInds
Symphony
186
175
567
510
58
56
99
95
AmaraRaja
113
386
56
PageIndustries
GRUHFinance
122
172
359
436
50
46
Mindtree
WABCOIndia
BlueDartExpress
144
132
117
388
338
304
SupremeInds
160
CholamandalamInv
139
AbboIndia
152
PAT
BiggestFastest
68
1
81
2
P/E(x)
CAGR%
52
234
2016
31
14
2011
5
226
4
5
30
52
33
27
9
17
7
8
37
15
25
77
10
14
59
27
31
11
72
94
11
13
32
22
58
36
31
14
46
43
43
84
78
69
14
16
17
42
9
15
18
60
75
15
15
29
351
38
92
23
42
12
327
33
90
27
49
19
27
355
28
98
36
34
39
29
*201116WealthCreaonRank
8.3MidtoMega:26companies,31%averagePriceCAGR
During201116,26companiescrossedoverfromMidtoMega(listedonnextpage).
Allthe26madeittothisyearslistof100BiggestWealthCreators.
TheMidtoMegaporoliodeliveredaveragereturnCAGRof31%over201116v/s5%for
Sensex.
9December2016
29
Exhibit18 MidtoMega(201116):26companies,31%averagePriceCAGRv/s5%forSensex
MktCapRank
Price
WCRank*
2016
2011
CAGR%
36
49
222
282
70
13
59
AurobindoPharma
BritanniaInds
43
166
59
188
ShreeCement
RajeshExports
44
139
99
83
94
244
177
181
55
65
EicherMotors
BajajFinance
TorrentPharma
HavellsIndia
MothersonSumi
PidiliteInds
AshokLeyland
Marico
Emami
P&GHygiene
BajajFinserv
PAT
P/E(x)
CAGR%
2016
2011
48
42
19
23
39
29
10
50
48
19
25
10
12
28
46
22
40
10
37
43
42
21
50
18
19
16
34
96
17
34
13
36
34
43
48
24
25
46
15
13
33
18
15
126
135
33
28
26
27
28
22
32
35
29
20
41
25
64
60
136
122
31
34
31
11
30
12
28
36
37
23
44
34
89
157
92
72
162
134
28
28
51
54
38
39
12
23
52
48
27
42
27
42
42
13
15
BiggestFastest
28/40
12/14/2016
UPL
Divi'sLabs
TechMahindra
90
77
40
146
116
123
26
24
23
52
44
32
44
53
56
19
21
26
15
23
15
13
21
9
ApolloHospitals
98
161
23
70
57
11
58
32
GlenmarkPharma
YesBank
86
133
51
103
23
23
57
37
58
59
10
28
31
14
17
15
GlaxoSmith.Cons.
BharatForge
LICHousing
79
93
109
128
80
96
104
114
22
20
17
46
67
61
60
62
69
18
18
12
37
31
15
33
28
11
97
102
16
11
80
91
71
85
7
5
22
35
15
23
22
25
17
PetronetLNG
CastrolIndia
Average
31
*201116WealthCreaonRank
KeyTakeaway
Midcategory:AgoodplacetohuntforWealthCreators
TheMidtoMegaporolioof26stockshashandsomelyoutperformedthebenchmark.The
highsuccessrateof13%(26of200)makestheMidcategoryagoodplacetohuntforWealth
Creators.
9December2016
30
#9
WealthCreaon:Valuaonparametersanalysis
Paybackrao<1oersdisnctlysuperiorreturns
Thegeneralruleoflowvaluaon,highreturnsheldtruein201116.
Everystudyinvariablysuggeststhatthehighestreturnisgeneratedwhenpaybackraois
lessthan1x.Sevenofthetop10fastestWealthCreatorshadpaybackraooflessthan1x
inthebaseyear2011.
(PaybackisaproprietaryraoofMolalOswal,denedascurrentmarketcapdividedby
esmatedprotsoverthenextveyears.For2011,wecalculatethisraobasedonthe
actualprotsreportedoverthenextveyears).
Exhibit19 Paybackraolessthan1xremainsasureshotformulaformulbaggers
Range
No.of
WC
%Share
in2011
Cos.
(INRb)
ofWC
Price
CAGR(%)
PAT
2016
RoE(%)
2011
<10
13
2,047
23
12
19
32
1020
33
7,055
25
18
14
18
19
2030
38
16,923
60
19
18
21
22
>30
16
2,410
21
16
21
22
Total
100
28,436
100
19
16
20
22
P/E
Price/Book
29/40
12/14/2016
<2
15
2,197
22
18
17
13
23
18
4,603
16
22
15
17
18
34
17
3,810
13
19
10
14
23
45
10
5,003
18
22
23
19
19
>5
40
12,822
45
17
15
28
34
Total
100
28,436
100
19
16
20
22
Price/Sales
<1
22
4,228
15
25
16
20
22
12
17
3,140
11
23
14
16
18
23
17
3,985
14
23
16
19
22
34
19
5,926
21
19
16
19
24
>4
25
11,156
39
16
16
21
22
Total
100
28,436
100
19
16
20
22
<1
14
1,956
39
19
20
24
12
26
5,706
20
21
17
19
22
23
29
12,718
45
19
17
19
20
>3
31
8,056
28
16
11
23
25
Total
100
28,436
100
19
16
20
22
Paybackrao
9December2016
31
#10 Thosewhomissedthelist
Thebigwhodidntbeatthemarket
During201116,theSensexreturnCAGRwas5.4%.
5companies Wipro,IndianOil,Larsen&Toubro,ICICIBank,Siemens
createdenough
wealthtoqualifyamongthe100biggest,butfailedtomakeittothenallistastheirstock
pricereturnwaslowerthantheSensex.
Theymadewayfor5otherstojointhelist
Wockhardt,RamcoCement,AbboIndia,
PIIndustries and KajariaCeramics.

Exhibit20 Thosewhomissedthelist
WC*
(INRb)
Exhibit21
Price
Potenal
CAGR(%)SizeRank**
andthosewhomadeit
WC*
Price
(INRb)
CAGR(%)
Size
Rank
Wipro
234
3.3
33
Wockhardt
72
25
96
IOCL
144
3.3
57
RamcoCem.
71
32
97
L&T
114
2.0
76
AbboIndia
70
28
98
ICICIBank
86
1.2
90
PIInds
70
58
99
Siemens
78
4.5
96
KajariaCera.
69
66
100
*WealthCreated;**Sizerankhadthestockoutperformedthebenchmark
Thefastwhodidntmakeitbig
The100thbiggestWealthCreatorcreatedWealthofINR69billion.Overa100more
companiesbeatthebenchmarkreturnCAGR5.4%butcreatedabsolutewealthlessthan
INR69billion.
Thetablebelowliststhetop20amongthem.
Exhibit22 Thefastwhodidntmakeitbig
Price
CAGR(%)
Price
Appreciaon(x)
WealthCreated
(INRb)
30/40
12/14/2016
SolarIndustries
43
5.9
52
JKCements
BalkrishnaInds
FagBearings
37
36
36
4.8
4.7
4.6
37
49
50
DalmiaBharat
FinolexIndustries
34
33
4.3
4.2
49
34
PersistentSystems
SRF
33
33
4.2
4.1
47
57
SPARC
33
4.1
54
HexawareTech
Arvind
32
32
4.1
4.0
62
54
BajajCorp
HoneywellAuto
ForceMotors
31
31
29
3.9
3.8
3.6
42
56
27
ICRA
29
3.6
28
ThomasCook(I)
29
3.6
40
AegisLogiscs
27
3.4
23
SundramFasteners
Entertain.Network
27
25
3.3
3.1
25
25
CapitalFirst
25
3.1
25
9December2016
32
#11 WealthDestrucon:Companies&Sectors
TheCommodityCollapseConnues
ThetotalWealthDestroyedduring201116isINR15trillion,53%ofthetotalWealth
Createdbytop100companies.
7ofthetop10WealthDestroyersareinthebusinessofglobalcommodies.
ThebroaderthemeofWealthDestruconis
cyclicaldownturn.
Metals/Miningisthe
biggestWealthDestroyingsectoraswasthecaselastyear.ThisisfollowedbyBanking&
Finance,whichmainlyincludesstateownedbanksatthewrongendoftheNPAcycle.
CapitalGoodsandConstrucon/RealEstatealsocorroboratethecyclicaldownturntheme.
Exhibit23
Exhibit24
GlobalcommoditycompaniestopWealthDestroyerslist
Theusualsuspectsatthesectorleveltoo
Company
WealthDestroyed
INRb
Price
%ShareCAGR(%)
Wealth
Destroyed
(INRb)
5,058
Sector
%
Share
MMTC
NMDC
889
735
6
5
47
19
BHEL
ONGC
JindalSteel
Vedanta
StateBankofIndia
NTPC
730
645
592
570
542
529
5
4
4
4
4
3
23
6
39
21
7
8
Banking&Finance
Ulies
CapitalGoods
Oil&Gas
2,991
1,555
1,393
1,256
20
10
9
8
Constn./RealEst.
Technology
1,012
301
7
2
524
348
6,104
15,146
3
2
40
100
24
3
Chemicals&Fert.
Telecom
Others
Total
295
214
1,071
15,146
2
1
7
100
SAIL
CoalIndia
Totalofabove
TotalWealthDestroyed
Metals/Mining
33
Exhibit25 LevelofWealthDestruconconnuestoclimb
93
Wealthdestroyed(INRb)
%ofWealthCreatedbytop100WealthCreators
53
43
33
18
2,586
43
124
142
59
14
15
2
1,704
650
3,254
5,425
17,140
4,185
14,65415,146
31/40
12/14/2016
KeyTakeaway
CyclicalsWhentoSellasimportantasWhentoBuy
Invesnginsecularstocksandinvesngincyclicalstocksarebesttreatedastwodisnct
.
investmentstyles.Inbothcases,WhentoBuyisimportant.However,wheninvesngin
cyclicalstocks,WhentoSellisasimportantifnotmore.Failuretosellatthepeakofthecycle
willmostlikelyleadtoaprolongedperiodofunderperformance.
9December2016
33
Appendix1:MOSL100:BiggestWealthCreators(20112016)
Rank
Company
WealthCreated
CAGR(201116,%)
RoE(%)
P/E(x)
INRb
Share(%)
Price
PAT
Sales
2016
2011
2016
2011
TCS
2,637
9.3
16
22
24
37
37
21
26
HDFCBank
1,475
5.2
18
26
26
17
16
21
27
Hind.Unilever
1,266
4.5
25
14
11
102
76
46
30
ITC
1,197
4.2
13
14
12
28
30
28
28
SunPharma
1,169
4.1
30
24
38
16
19
38
26
Infosys
948
3.3
15
18
24
26
20
27
HCLTechnologies
819
2.9
28
27
14
20
21
21
20
KotakMahindraBank
760
2.7
24
17
28
10
14
36
21
MaruSuzuki
742
2.6
24
14
10
17
16
25
16
10
HDFC
682
2.4
10
18
16
20
21
17
23
11
AsianPaints
591
2.1
28
16
16
31
38
48
29
12
UltraTechCement
574
2.0
23
10
13
10
13
40
23
13
EicherMotors
484
1.7
70
48
29
36
14
42
20
14
Lupin
480
1.7
29
21
20
21
26
29
21
15
Bosch
443
1.6
25
10
15
21
53
24
16
BPCL
428
1.5
24
35
29
12
12
17
AxisBank
401
1.4
10
20
22
16
18
13
17
18
IndusIndBank
380
1.3
30
32
26
13
15
25
21
19
AurobindoPharma
379
1.3
50
28
26
28
23
22
10
20
TataMotors
365
1.3
18
16
48
21
ShreeCement
360
1.3
43
16
10
11
96
34
22
GodrejConsumer
346
1.2
30
19
19
22
28
41
25
23
BajajFinance
322
1.1
59
39
39
17
18
29
10
24
M&M
321
1.1
12
16
11
20
24
15
25
BritanniaInds
277
1.0
48
46
13
45
37
40
37
26
BajajAuto
274
1.0
11
27
58
20
15
27
HeroMotoCorp
271
1.0
13
10
37
62
20
17
28
MothersonSumi
270
0.9
33
27
36
30
24
28
22
29
DaburIndia
268
0.9
21
17
16
30
40
36
30
30
ZeeEntertainment
264
0.9
26
11
14
25
20
35
19
31
DrReddy'sLabs
239
0.8
13
10
13
24
33
28
32
TechMahindra
237
0.8
23
26
39
22
29
15
33
AdaniPorts
231
0.8
13
25
29
22
22
18
30
34
AshokLeyland
228
0.8
31
11
13
26
24
30
12
35
PidiliteInds
227
0.8
32
20
15
27
28
41
25
36
Marico
226
0.8
28
23
14
34
28
44
34
37
YesBank
223
0.8
23
28
27
18
19
14
15
38
UnitedSpirits
205
0.7
19
10
18
13
115
26
39
PowerGridCorpn
203
0.7
18
20
14
12
12
18
40
NestleIndia
202
0.7
32
96
63
43
41
HindustanZinc
194
0.7
10
21
22
10
12
42
BajajFinserv
186
0.7
27
13
42
14
27
15
43
TorrentPharma
178
0.6
36
46
25
53
26
13
18
44
Divi'sLabs
172
0.6
24
21
23
26
24
23
21
45
CadilaHealthcare
162
0.6
15
16
16
28
33
21
23
46
GlaxoSmithklineCons.
160
0.6
22
18
13
28
31
37
32
47
BharatElectronics
158
0.6
17
10
15
17
21
15
32/40
12/14/2016
48
49
HavellsIndia
Cipla
155
154
0.5
0.5
34
10
15
8
7
17
24
12
50
RajeshExports
151
0.5
42
34
52
22
Company
WealthCreated
Rank
INRb
Share(%)
CAGR(201116,%)
Price
PAT
47
15
33
28
16
17
RoE(%)
Sales
2016
15
26
13
P/E(x)
2011
2016
2011
9December2016
34
Appendix1:MOSL100:BiggestWealthCreators(20112016)connued
Rank
Company
WealthCreated
CAGR(201116,%)
RoE(%)
P/E(x)
INRb
Share(%)
Price
PAT
Sales
2016
2011
2016
2011
51
Emami
151
0.5
28
12
16
29
33
52
27
52
UPL
145
0.5
26
19
18
20
15
15
13
53
HPCL
145
0.5
17
21
29
14
54
P&GHygiene
145
0.5
28
23
20
28
25
48
39
55
Glaxosmith.Pharma
145
0.5
13
22
30
86
31
56
BergerPaints
139
0.5
41
19
15
24
21
47
21
57
GlenmarkPharma
138
0.5
23
10
21
24
22
31
17
58
MRF
136
0.5
44
46
22
34
21
59
AmaraRajaBaeries
134
0.5
56
27
22
23
23
31
11
60
AmbujaCement
133
0.5
10
10
17
50
19
61
LICHousingFinance
132
0.5
17
12
21
18
23
15
11
62
TitanCompany
132
0.5
12
10
12
20
42
44
39
63
OracleFinancial
131
0.5
12
32
21
25
15
64
IdeaCellular
130
0.5
10
24
18
10
16
25
65
GrasimInds
127
0.4
11
15
16
10
66
TVSMotor
125
0.4
40
23
12
25
19
41
22
67
BharatForge
124
0.4
20
18
18
15
31
28
68
AjantaPharma
122
0.4
121
52
28
35
22
31
69
BlueDartExpress
120
0.4
43
15
17
47
17
75
25
70
ApolloHospitals
119
0.4
23
11
18
10
58
32
71
SundaramFinance
118
0.4
40
16
14
22
24
72
PageIndustries
117
0.4
50
32
29
46
47
58
31
73
ColgatePalmolive
114
0.4
15
13
59
105
38
28
74
PiramalEnterprises
107
0.4
20
28
32
19
26
75
BayerCropScience
107
0.4
33
18
12
17
20
44
27
76
KansaiNerolac
104
0.4
26
20
13
21
20
32
26
77
ABB
102
0.4
10
36
10
89
257
78
WABCOIndia
99
0.3
43
16
19
33
60
15
79
CumminsIndia
98
0.3
11
22
33
32
23
80
PetronetLNG
97
0.3
16
16
13
23
22
15
81
WelspunIndia
96
0.3
88
234
23
35
14
226
82
JSWSteel
95
0.3
12
11
20
12
83
Vakrangee
94
0.3
63
52
29
26
14
27
17
84
Mindtree
94
0.3
46
42
25
25
13
18
15
85
UnitedBreweries
91
0.3
11
15
11
14
14
73
83
86
GilleeIndia
86
0.3
20
20
14
25
14
68
66
87
CRISIL
85
0.3
23
11
17
32
41
47
27
88
ContainerCorpn.
84
0.3
10
10
18
31
18
89
3MIndia
84
0.3
26
15
12
20
18
60
38
90
CholamandalamInv.
81
0.3
33
49
28
16
19
27
91
CastrolIndia
79
0.3
11
108
89
30
22
92
SupremeInds
75
0.3
38
17
35
42
10
93
BajajHoldings
74
0.3
13
12
15
31
94
GRUHFinance
74
0.3
46
22
29
29
29
36
14
95
Symphony
74
0.3
56
15
34
41
77
17
96
Wockhardt
72
0.3
25
14
322
36
97
RamcoCement
71
0.3
32
21
18
12
17
12
98
AbboIndia
70
0.2
28
34
20
23
20
39
30
99
PIInds
70
0.2
58
37
24
27
32
25
10
100
KajariaCeramics
69
0.2
66
30
20
25
28
33
28,436
100.0
19
16
15
20
22
22
19
Sales
2016
2011
2016
TOTAL
Rank
Company
WealthCreated
INRb
Share(%)
CAGR(201116,%)
Price
9December2016
PAT
RoE(%)
P/E(x)
2011
35
33/40
12/14/2016
Appendix2:MOSL100:FastestWealthCreators(20112016)
RankCompany
201116Price
CAGR(%)Times(x)
CAGR1116(%)
PAT
Sales
WealthCreated
INRbShare(%)
RoE(%)
P/E(x)
20162011
2016
2011
AjantaPharma
121
52.8
52
28
122
0.4
35
22
31
WelspunIndia
88
23.3
234
23
96
0.3
35
14
226
EicherMotors
70
14.4
48
29
484
1.7
36
14
42
20
KajariaCeramics
66
12.6
30
20
69
0.2
25
28
33
Vakrangee
63
11.3
52
29
94
0.3
26
14
27
17
BajajFinance
59
10.2
39
39
322
1.1
17
18
29
10
PIInds
58
9.7
37
24
70
0.2
27
32
25
10
Symphony
56
9.3
15
74
0.3
34
41
77
17
AmaraRajaBaeries
56
9.3
27
22
134
0.5
23
23
31
11
10AurobindoPharma
50
7.6
28
26
379
1.3
28
23
22
10
11PageIndustries
50
7.5
32
29
117
0.4
46
47
58
31
12BritanniaInds
48
7.2
46
13
277
1.0
45
37
40
37
13GRUHFinance
46
6.6
22
29
74
0.3
29
29
36
14
14Mindtree
46
6.6
42
25
94
0.3
25
13
18
15
15MRF
44
6.1
46
22
136
0.5
34
21
16WABCOIndia
43
6.0
16
99
0.3
19
33
60
15
17BlueDartExpress
43
6.0
15
17
120
0.4
47
17
75
25
18ShreeCement
43
6.0
16
10
360
1.3
11
96
34
19RajeshExports
42
5.7
34
52
151
0.5
22
16
17
13
20BergerPaints
41
5.6
19
15
139
0.5
24
21
47
21
21SundaramFinance
40
5.4
16
118
0.4
14
22
24
22TVSMotor
40
5.4
23
12
125
0.4
25
19
41
22
23SupremeInds
38
5.1
75
0.3
17
35
42
10
24TorrentPharma
36
4.6
46
25
178
0.6
53
26
13
18
25HavellsIndia
34
4.3
15
155
0.5
24
47
33
15
26MothersonSumi
33
4.2
27
36
270
0.9
30
24
28
22
27CholamandalamInv.
33
4.1
49
28
81
0.3
16
19
27
28BayerCropScience
33
4.1
18
12
107
0.4
17
20
44
27
29PidiliteInds
32
4.0
20
15
227
0.8
27
28
41
25
30RamcoCement
32
3.9
21
71
0.3
18
12
17
12
31AshokLeyland
31
3.8
11
13
228
0.8
26
24
30
12
32GodrejConsumer
30
3.8
19
19
346
1.2
22
28
41
25
33SunPharma
30
3.7
24
38
1,169
4.1
16
19
38
26
34IndusIndBank
30
3.7
32
26
380
1.3
13
15
25
21
35Lupin
29
3.6
21
20
480
1.7
21
26
29
21
36AbboIndia
28
3.5
34
20
70
0.2
23
20
39
30
37Marico
28
3.5
23
14
226
0.8
34
28
44
34
38Emami
28
3.5
12
16
151
0.5
29
33
52
27
39P&GHygiene
28
3.5
23
20
145
0.5
28
25
48
39
40AsianPaints
28
3.4
16
16
591
2.1
31
38
48
29
41HCLTechnologies
28
3.4
27
14
819
2.9
20
21
21
20
42BajajFinserv
27
3.3
13
42
186
0.7
14
27
15
433MIndia
26
3.2
15
12
84
0.3
20
18
60
38
44UPL
26
3.2
19
18
145
0.5
20
15
15
13
45KansaiNerolac
26
3.2
20
13
104
0.4
21
20
32
26
46ZeeEntertainment
26
3.1
11
14
264
0.9
25
20
35
19
47Bosch
25
3.1
10
443
1.6
15
21
53
24
48Hind.Unilever
25
3.1
14
11
1,266
4.5
102
76
46
30
49Wockhardt
25
3.0
14
72
0.3
322
36
50KotakMahindra
24
3.0
17
28
760
2.7
10
14
36
21
RankCompany
201116Price
CAGR(%)Times(x)
CAGR1116(%)
PAT
Sales
WealthCreated
INRbShare(%)
RoE(%)
20162011
P/E(x)
2016
2011
9December2016
36
34/40
12/14/2016
Appendix2:MOSL100:FastestWealthCreators(20112016)connued
RankCompany
201116Price
CAGR(1116,%)
CAGR(%)Times(x)
PAT
Sales
WealthCreated
INRbShare(%)
RoE(%)
P/E(x)
20162011
2016
2011
51BPCL
24
2.9
35
428
1.5
29
12
12
52MaruSuzuki
24
2.9
14
10
742
2.6
17
16
25
16
53Divi'sLabs
24
2.9
21
23
172
0.6
26
24
23
21
54CRISIL
23
2.9
11
17
85
0.3
32
41
47
27
55UltraTechCement
23
2.8
10
13
574
2.0
10
13
40
23
56TechMahindra
23
2.8
26
39
237
0.8
22
29
15
57ApolloHospitals
23
2.8
11
18
119
0.4
10
58
32
58GlenmarkPharma
23
2.8
10
21
138
0.5
24
22
31
17
59YesBank
23
2.8
28
27
223
0.8
18
19
14
15
60GlaxoSmithklineCons
22
2.7
18
13
160
0.6
28
31
37
32
61DaburIndia
21
2.6
17
16
268
0.9
30
40
36
30
62BharatForge
20
2.5
18
124
0.4
18
15
31
28
63GilleeIndia
20
2.5
20
14
86
0.3
25
14
68
66
64PiramalEnterprises
20
2.5
28
32
107
0.4
19
26
65UnitedSpirits
19
2.4
10
205
0.7
18
13
115
26
66HDFCBank
18
2.3
26
26
1,475
5.2
17
16
21
27
67HPCL
17
2.2
21
145
0.5
29
14
68BharatElectron
17
2.2
10
158
0.6
15
17
21
15
69LICHousingFinance
17
2.2
12
21
132
0.5
18
23
15
11
70TCS
16
2.1
22
24
2,637
9.3
37
37
21
26
71PetronetLNG
16
2.1
16
97
0.3
13
23
22
15
72ColgatePalmolive
15
2.0
13
114
0.4
59
105
38
28
73CadilaHealthcare
15
2.0
16
16
162
0.6
28
33
21
23
74HeroMotoCorp
13
1.9
10
271
1.0
37
62
20
17
75DrReddy'sLabs
13
1.9
10
239
0.8
13
24
33
28
76BajajHoldings
13
1.8
12
74
0.3
15
31
77AdaniPorts
13
1.8
25
29
231
0.8
22
22
18
30
78Glaxosmith.Pharma
13
1.8
145
0.5
22
30
86
31
79ITC
13
1.8
14
12
1,197
4.2
28
30
28
28
80TitanCompany
12
1.8
10
12
132
0.5
20
42
44
39
81OracleFinancial
12
1.8
131
0.5
32
21
25
15
82M&M
12
1.7
16
321
1.1
11
20
24
15
83CumminsIndia
11
1.7
98
0.3
22
33
32
23
84UnitedBreweries
11
1.7
15
11
91
0.3
14
14
73
83
85CastrolIndia
11
1.7
79
0.3
108
89
30
22
86BajajAuto
11
1.6
274
1.0
27
58
20
15
87IdeaCellular
10
1.6
24
18
130
0.5
10
16
25
88ABB
10
1.6
36
102
0.4
10
89
257
89Cipla
10
1.6
17
154
0.5
12
15
28
26
90AxisBank
10
1.6
20
22
401
1.4
16
18
13
17
91HDFC
10
1.6
18
16
682
2.4
20
21
17
23
92AmbujaCement
10
1.6
10
133
0.5
17
50
19
93NestleIndia
1.6
202
0.7
32
96
63
43
94TataMotors
1.6
18
365
1.3
16
48
95GrasimInds
1.6
11
127
0.4
15
16
10
96ContainerCorpn
1.5
10
84
0.3
10
18
31
18
97Infosys
1.5
15
18
948
3.3
24
26
20
27
98JSWSteel
1.4
12
95
0.3
11
20
12
99PowerGridCorpn
1.4
18
20
203
0.7
14
12
12
18
100HindustanZinc
1.3
10
194
0.7
21
22
10
12
19
2.4
16
15
28,436
100.0
20
22
22
TOTAL
RankCompany
201116Price
CAGR(1116,%)
CAGR(%)Times(x)
PAT
Sales
WealthCreated
RoE(%)
INRbShare(%)
19
P/E(x)
20162011
2016
2011
9December2016
37
Appendix3:MOSL100:Alphabecalorder
WCRank
Company
WealthCreated
BiggestFastest
INRb
Price
WCRank
Price
CAGR%Mult.(x)
Company
BiggestFastest
WealthCreated
INRb
Price
Price
CAGR%Mult.(x)
3MIndia
89
43
84
26
3.2
Hind.Unilever
48
1,266
25
3.1
ABB
77
88
102
10
1.6
HindustanZinc
41
100
194
1.3
AbboIndia
98
36
70
28
3.5
IdeaCellular
64
87
130
10
1.6
35/40
12/14/2016
AdaniPorts
AjantaPharma
33
68
77
1
231
122
13
121
1.8
52.8
IndusIndBank
Infosys
18
6
34
97
380
948
30
9
3.7
1.5
AmaraRajaBaeries
AmbujaCement
59
134
56
9.3
60
92
133
10
1.6
ITC
79
1,197
13
1.8
JSWSteel
82
98
95
ApolloHospitals
70
57
119
23
1.4
2.8
KajariaCeramics
100
69
66
12.6
AshokLeyland
34
31
228
AsianPaints
11
40
591
31
3.8
KansaiNerolac
76
45
104
26
3.2
28
3.4
KotakMahindra
50
760
24
AurobindoPharma
19
10
3.0
379
50
7.6
LICHousingFinance
61
69
132
17
AxisBank
17
2.2
90
401
10
1.6
Lupin
14
35
480
29
BPCL
3.6
16
51
428
24
2.9
M&M
24
82
321
12
1.7
BajajAuto
26
86
274
11
1.6
Marico
36
37
226
28
3.5
BajajFin.
23
322
59
10.2
MaruSuzuki
52
742
24
2.9
BajajFinserv
42
42
186
27
3.3
Mindtree
84
14
94
46
6.6
BajajHoldings
93
76
74
13
1.8
MothersonSumi
28
26
270
33
4.2
BayerCropScience
75
28
107
33
4.1
MRF
58
15
136
44
6.1
BergerPaints
56
20
139
41
5.6
NestleIndia
40
93
202
1.6
BharatElectron
47
68
158
17
2.2
OracleFinancial
63
81
131
12
1.8
BharatForge
67
62
124
20
2.5
P&GHygiene
54
39
145
28
3.5
BlueDartExpress
69
17
120
43
6.0
PIInds
99
70
58
9.7
Bosch
15
47
443
25
3.1
PageIndustries
72
11
117
50
7.5
BritanniaInds
25
12
277
48
7.2
PetronetLNG
80
71
97
16
2.1
CadilaHealthcare
45
73
162
15
2.0
PidiliteInds
35
29
227
32
4.0
CastrolIndia
91
85
79
11
1.7
PiramalEnterprises
74
64
107
20
2.5
CholamandalamInv.
90
27
81
33
4.1
PowerGridCorpn
39
99
203
1.4
Cipla
49
89
154
10
1.6
RajeshExports
50
19
151
42
5.7
ColgatePalmolive
73
72
114
15
2.0
ShreeCement
21
18
360
43
6.0
ContainerCorpn
88
96
84
1.5
SunPharma
33
1,169
30
3.7
CRISIL
87
54
85
23
2.9
SundaramFinance
71
21
118
40
5.4
CumminsIndia
79
83
98
11
1.7
SupremeInds
92
23
75
38
5.1
DaburIndia
29
61
268
21
2.6
Symphony
95
74
56
9.3
Divi'sLabs
44
53
172
24
2.9
TataMotors
20
94
365
1.6
DrReddy'sLabs
31
75
239
13
1.9
TCS
70
2,637
16
2.1
EicherMotors
13
484
70
14.4
TechMahindra
32
56
237
23
2.8
Emami
51
38
151
28
3.5
TheRamcoCement
97
30
71
32
3.9
GilleeIndia
86
63
86
20
2.5
TitanCompany
62
80
132
12
1.8
Glaxosmith.Pharma
55
78
145
13
1.8
TorrentPharma
43
24
178
36
4.6
GlaxoSmithh.Cons.
46
60
160
22
2.7
TVSMotor
66
22
125
40
5.4
GlenmarkPharma
57
58
138
23
2.8
UltraTechCement
12
55
574
23
2.8
GodrejConsumer
22
32
346
30
3.8
UnitedBreweries
85
84
91
11
1.7
GrasimInds
65
95
127
1.6
UnitedSpirits
38
65
205
19
2.4
GRUHFinance
94
13
74
46
6.6
UPL
52
44
145
26
3.2
HDFC
10
91
682
10
1.6
Vakrangee
83
94
63
11.3
HPCL
53
67
145
17
2.2
WABCOIndia
78
16
99
43
6.0
HavellsIndia
48
25
155
34
4.3
WelspunIndia
81
96
88
23.3
HCLTechnologies
41
819
28
3.4
Wockhardt
96
49
72
25
3.0
HDFCBank
66
1,475
18
2.3
YesBank
37
59
223
23
2.8
27
74
271
13
1.9
ZeeEntertainment
30
46
264
26
3.1
HeroMotoCorp
9December2016
38
SpaceforNotes
36/40
12/14/2016
9December2016
39
SpaceforNotes
37/40
12/14/2016
9December2016
40
Disclosures
SectorUpdate|Technology
ThisdocumenthasbeenpreparedbyMotilalOswalSecuritiesLimited(hereinafterreferredtoasMost)toprovideinformationaboutthecompany(ies)and/sector(s),ifany,coveredinthereportandmaybedistributedbyitand/orits
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futureperformance,futurereturnsarenotguaranteedandalossoforiginalcapitalmayoccur.
NOTES
Withmarginfearsallayedat
HCLT, thestockhasalreadyseenanupck;triggersto
further
MOStanditsaffiliatesareafullservice,integratedinvestmentbanking,investmentmanagement,brokerageandfinancinggroup.Weandouraffiliateshaveinvestmentbankingandotherbusinessrelationships
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MOStanditsaffiliatedcompany(ies),theirdirectorsandemployeesandtheirrelativesmay(a)fromtimetotime,havealongorshortpositionin,actasprincipalin,andbuyorsellthesecuritiesorderivativesthereofofcompanies
Exhibit9:
mentionedherein.(b)beengagedinanyothertransactioninvolvingsuchsecuritiesandearnbrokerageorothercompensationoractasamarketmakerinthefinancialinstrumentsofthecompany(ies)discussedhereinoractasan
advisorCorlender/borrowertosuchcompany(ies)or
ompany
Mktcap
Rang
mayhave anyotherpotentialconflictofinterestswithrespecttoanyrecommendationandotherrelatedinformation
TP(INR)Upside
EPS(INR)
P/E(x)
RoE
and opinions.howeverthesameshallhave
(%)
FY1618ECAGR (%)
nobearing
whatsoeveronthespecificrecommendationsmadebytheanalyst(s),astherecommendationsmadebytheanalyst(s)arecompletelyindependentoftheviewsoftheaffiliatesofMOSteventhoughtheremightexistaninherent
(USD b)
(%)
FY17EFY18EFY17EFY18E
FY17EFY18E
USDrev.
EPS
conflictofinterestinsomeofthestocks mentionedintheresearchreportReportsbasedontechnicalandderivativeanalysiscenteronstudyingchartscompany's pricemovement,outstanding positionsand tradingvolume,as
opposedtofocusingonacompany'sfundamentalsand,assuch,maynotmatchwithareportonacompany'sfundamentalanalysis.InadditionMOST
hasdifferentbusinesssegments/Divisionswithindependent research
TCS
77.2
Neutral
2,650
0.2
134.0
153.1
19.8
17.3
33.6
32.7
10.8 11.5
separatedbyChinesewallscateringtodifferentsetofcustomershavingvariousobjectives,riskprofiles,investmenthorizon,etc,andthereforemayattimeshavedifferentcontraryviewsonstockssectorsandmarkets.
risk.
Comparavevaluaons
Infosys
36.6
Buy
1,320
21.7
62.8
73.2
17.3
14.8
23.2
24.1
11.211.3
Unauthorizeddisclosure,use,disseminationorcopying(eitherwholeorpartial)ofthisinformation,isprohibited.ThepersonaccessingthisinformationspecificallyagreestoexemptMOStoranyofitsaffiliatesoremployeesfrom,
anyandallresponsibility/liabilityarisingfromsuchmisuseandagreesnottohold
MOSt oranyofitsaffiliatesoremployeesresponsibleforanysuchmisuseandfurtheragreestoholdMOStoranyofitsaffiliates
oremployeesfree
Wipro
19.9
Neutral
570
4.0
34.9
40.6
15.7
13.5
17.9
18.9
7.3
6.0
andharmlessfromalllosses,costs,damages,expensesthatmaybesufferedbythepersonaccessingthisinformationduetoanyerrorsanddelays.Theinformationcontainedhereinisbasedonpubliclyavailabledataorother
HCLTech
17.2
Buy
95015.0
56.3
62.8
14.7
13.2
26.3
25.1
11.4
8.3
sourcesbelievedtobereliable.AnystatementscontainedinthisreportattributedtoathirdpartyrepresentMOStsinterpretationofthedata,information
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TechM
7.2
Neutral
55010.7
33.8
41.3
14.7
12.0
19.8
17.6
9.6
8.5
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Analystownershipofthestock
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AxisBank and TataMotors.

Electronics and PowerGridCorporaon.

PIIndustries and KajariaCeramics.

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