A study analyzing 20 years of data from Dalal Street’s biggest multibaggers reveals that the majority of stocks that achieved a minimum compounded annual growth rate (CAGR) of 25% came from traditional manufacturing sectors such as capital goods, engineering, commodities, and consumption. The top performer on the list is PI Industries, whose stock has experienced a remarkable CAGR of 55%, multiplying its value 6,485 times.
Other notable wealth creators in the list include KEI Industries, Bajaj Finance, Titan, Relaxo Footwear, and Havells India, among others. According to ICICI Securities analyst Vinod Karki, business models that thrive during economic upcycles and maintain value during downturns can be considered as ‘through-the-cycle’ (TTC) compounders. The majority of stocks in this category belong to traditional manufacturing sectors such as chemicals, cement, building materials, home appliances, and capital goods.
ICICI Securities divided the cycle into three phases for their study. The first cycle, from 2003 to 2010, was characterized by a booming investment and real estate market. The second cycle, from 2011 to 2021, was marked by low earnings volatility and high-quality stocks. The current third cycle, starting from FY21, is driven by capital-intensive and cyclical stocks as the investment cycle picks up again after a decade.
Some key takeaways from the study include the importance of a focused core business, earnings growth and return on equity greater than the cost of equity, cumulative operating cash flow exceeding cumulative capex, avoidance of high financial leverage, and the influence of competition on a company’s success. Interestingly, none of the stocks that made it to the list during the dot-com bubble era were from new-age sectors such as Telecom, Media, and Technology (TMT).
The median trailing P/E of the stocks at the beginning of the 20-year period was around 11x, but it currently stands at approximately 55x. It is important to note that the stocks included in the study had a market capitalization of less than Rs 20,000 crore.
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