Time may be a friend of fine companies and an enemy of bad companies. In the last 2.5 decades, successful companies grow to unimaginable levels in sales, profits, and market cap. Only 100 companies of the highest 500 companies listed in 1995 have outperformed the benchmark. Stock returns are slaves of earnings power and growth. In the very long term, valuations matter less. The long-run always holds plenty more promise. Over 50% of the current market cap is formed from listings post-1995. Equity investing is complex.
Wealth Creation is the process by which an organization enhances the value of the capital entrusted to that by its shareholders. It’s a basic measure of success for any commercial venture. Some interesting data points were garnered from 25 years of India’s corporate financial history.
Between 1995 and 2020, Infosys clocked a strong Price CAGR of 30% to emerge as the Fastest Wealth Creator. This was backed by a 25-year PAT CAGR of 33%. the common market cap of the highest 25 Fastest Wealth Creators was INR 4 billion in 1995, which stood at over INR 750 billion in 2020. INR 1 million invested equally in these 25 stocks in 1995 would have grown to INR 162 million in 2020, delivering a 25-year CAGR of 23%.
At the same time, Reliance Industries created a wealth of INR 6.3 trillion to emerge as the most important Wealth Creator. Followed by Hindustan Unilever with INR 4.9 trillion of Wealth Created. Infosys and Bajaj Finance have a creditable performance of being among the highest 10, both in terms of Fastest and largest Wealth Creators. Kotak Mahindra Bank is the most Consistent Wealth Creator. It has outperformed the corresponding benchmark in 21 of these periods. it’s closely followed by Berger Paints and HDFC with 20 periods of outperformance.
Where consistency says, the higher the value CAGR, the higher the rank. The highest 10 Fastest Wealth Creators are Berger Paints, Pidilite, Shree Cement, Honeywell Automation, Mother son Sumi and Sun Pharma.
The All-round Wealth Creators rank is fell upon by combining the ranks of Fastest, Biggest, and Consistent Wealth Creators. At INR 12 trillion, Consumer/Retail is the biggest Wealth Creating sector during the discussed tenure. 63 of the 100 Wealth Creators are from consumer-facing businesses, accounting for 68% of the total Wealth Created.
Market cap ranks of companies change constantly. Over time, companies also cross over from one category to a different. For the period 1995-20, the market cap ranks can be explained as 4 Minis moved to the Mega category, delivering 34% return CAGR. 16 Minis moved to Mid by 2020 with a 21% return CAGR. 10 Mids. moved to Mega by 2020 providing a 21% return CAGR. 99 Mids. slipped to Mini generating -1% return. Of the 100 Mega companies in 1995, only 32 stayed as Mega in 2020 with a 13% CAGR. And 20 slipped to Mid generating a 7% CAGR. A high 45 slipped to Mini failing to – 3% CAGR.