Stocks that created most wealth in last 6 years

Motilal Oswal’s 25th Annual Wealth Creation Study looks at companies that created the most value for shareholders between 2015 and 2020 and the trailblazers of the past 25 years. ET Wealth provides a snapshot.

25 years of wealth creation (1995-2020)
Infosys has been the fastest wealth creator in the past 25 years
The average market cap of the top 25 Fastest Wealth Creators was Rs 400 crore in 1995, which stood at over Rs 75,000 crore in 2020.

Reliance has been the biggest wealth creator
Infosys and Bajaj Finance have a creditable performance of being among the top 10, both in terms of Fastest and Biggest Wealth Creators.

Kotak Mahindra Bank has been the most consistent wealth creator
In the 23 3-year rolling periods between 1995 and 2020, Kotak Mahindra has outperformed the corresponding benchmark in 21.

Consumer/retail has been biggest wealth creating sector
63 of the 100 Wealth Creators are from consumer-facing businesses, accounting for 68% of total wealth created.

Sector mix of top 100 wealth creators

Several erstwhile wealth creators have since faded away
Almost 60 of the top 100 market cap companies in 1995 did not make it to the Wealth Creators list, as their return CAGR was lower than that of the Sensex (9.2%).

Observations

• Almost all companies...
• Were small to mid in size in the base year 1995
• Were consumer-facing, bestowing them a secular business model
• Were very profitable
• Grew to emerge as market leaders in respective business
• Had management with high integrity and competence

Wealth creators of 2015-2020
Wealth created is lowest in 7 years
A key reason for muted returns is a sharp correction in March 2020 on fears of a Covid-led global slowdown.

Consumer sector biggest wealth creator
Financials lost its pride of place to consumer/retail sector. However, as finance is the life-blood of any economy, a bounce back can be expected soon.

Mid-to-mega is a potent investing strategy
Companies leap-frogging from Mini to Mega is very rare while a fair number of companies move from Mini to Mid. But the most potent and focused hunting ground for high-performing stocks is the Mid category.

Tasty Bite Eatables emerged as the fastest wealth creator
History suggests that quite a few names of the past no longer exist today. Investors should move with caution. Management integrity is the key differentiator between the enduring winners and the transitory multi-baggers.

The scenario now
Corporate profit to GDP is near an all-time low...
Corporate profit has hit rock bottom after stagnating for the past five years. This is similar to 1999 to 2003, after which corporate profits took off for the next five years.

...but market cap to GDP is close to an all-time high
Valuations are frothy with market cap around 100% of GDP.