150 Wealth-Creators

Many potential investors shy away from parking funds in stocks because of the assumption that this form of investment rides on high risk factors. While it is true that volatility is the name of the game in the stock market, equally true is the fact that disciplined investors who have adopted the right strategies have now become wealthy icons. So, how do you go about it? DSIJ Team highlights the factors that you need to take care of while foraying into the stock market 

The year is 2004. In the bustling heart of Bangalore, amidst the aroma of filter coffee and the rhythmic notes of the keyboards is Rahul Rao, a young software engineer with dreams painted in pixels. Unlike his tech-savvy peers, Rahul has always harboured a secret fascination with the stock market, a world seemingly shrouded in mystery and risk. Fuelled by curiosity, he then embarked on a journey that would not only transform his finances but also redefine his perception of wealth creation.  [EasyDNNnews:PaidContentStart]

Rahul’s first brush with equities was through his uncle Ashok Hegde, a believer in long-term investing. He explained to Rahul how even small amounts of investment in diverse companies could help him to become wealthier over a given period of time. Investing in a diverse set of companies would help him spread the risk and create higher potential for profits. With trepidation, Rahul started investing ₹1,000 per month in five blue-chip Indian companies. He selected those five companies based on his uncle’s advice who had already conducted some research into their business operations and management. 

The example of Rahul Rao indicates that the route to becoming wealthy looks simple enough. Over the past four decades, the Indian stock market, represented by BSE Sensex, has averaged an annual return of about 16 per cent per year. So, every ₹1 lakh invested at the start of 1980 would have yielded a whopping ₹7.1 crore now. Compare this with the return of less than ₹1 crore had the investment been made in fixed deposits. That is because the yield would have been only 11 per cent at a compounded rate. In terms of simple returns, it would have been even lower. 

Few paths to significant and rapid wealth creation are as effective as investing in the right kinds of stocks. By simply investing in a broad market index and sticking with it for the long haul, the odds are overwhelming in terms of ending up with returns that dwarf those of savings accounts, bonds, treasury bills, and even gold. Do a little better than the market average, and you will be raking in the profits. Yet, throughout history, the vast majority of investors — both amateur and professional (read mutual fund managers) — have been humbled by the market, failing to come anywhere close to those 15 per cent average annual gains. 

Why do they fail? What is it that makes it so difficult for investors to take advantage of the stock market’s long-term benefits? And what can we learn from those rare few who have consistently generated outstanding returns over the long term? Excellent companies, regardless of their size, will always be able to provide their shareholders with impressive investment gains. With increased opportunity, though, you have increased risks. Many people have been stung by those risks, and subsequently stocks have acquired a negative reputation in some investment circles. 

In almost all the situations in which investors have lost money, they could easily have avoided the downside if they had only kept some basic factors in mind. The trick is to invest in companies that have low debt loads, strong management teams, expanding market share, growing revenues, and game-changing intellectual property. Building wealth may seem simple, but it’s far from easy. In fact, many aspects of life follow this pattern—simple in concept, yet challenging in execution. Consider personal fitness, for instance. The basic principle of losing weight boils down to a straightforward equation: calories in versus calories out. 

Eat less, move more. It sounds simple enough, right? However, achieving and maintaining a healthy weight requires much more than just understanding this equation. Similar to financial health, success in fitness demands discipline and sacrifice. It means saying no to all the tempting indulgences, like that slice of cake or a bag of chips, and instead opting for healthier, nutrient-rich options. It also involves putting in the hard work—committing to regular exercise, even when it feels challenging or inconvenient. 

For most people, these lifestyle changes are difficult to sustain. It’s not easy to resist cravings or find the motivation to exercise regularly. Yet, for those with a trained and disciplined mindset, the journey to a healthier lifestyle becomes more manageable. With dedication and consistency, making healthier choices and prioritising physical activity becomes second nature. In other words, for individuals with a strong will and commitment, achieving fitness goals becomes like a piece of cake, pun intended. The same principle applies to building wealth in the stock market. The concept may seem straightforward—invest wisely, diversify your portfolio, and stay the course for the long term. 

However, executing this strategy requires discipline, patience and a willingness to withstand market fluctuations. Just as with fitness, successful investing means resisting the urge to chase quick gains or succumb to market hype. It involves making rational decisions based on thorough research and analysis, even when emotions may tempt you to act impulsively. Like maintaining a healthy diet and exercise routine, building wealth through investing requires consistent effort and a steadfast commitment to your long-term financial goals. 

While the path to wealth creation may not be easy, it is certainly achievable for those who are willing to put in the work and maintain a disciplined approach. By embracing the simple yet challenging principles of financial health and investing, individuals can pave the way toward a more secure and prosperous future. Are you willing to do the work required? Investing in shares requires effort on your part. Proper analysis, performing due diligence and monitoring the shares you purchase call for effort. Investors who put in the most time garner the greatest rewards. Possess a high tolerance for risk. 

You will enjoy stock investing more if you can tolerate risk and volatility well. If you are going to lose sleep over 20 per cent price swings, safer investments may be more appropriate for you. The stock industry is filled with hidden motivations and misleading reviews, both positive and negative, of the companies. Always perform your own due diligence and have realistic expectations. You may make some good money while investing in stocks but you should not expect multibagger returns in shorter timeframe of just six months to a year. Have time available for research. The more time you can set aside to research your shares and monitor them, the greater the level of success you will probably enjoy in stocks. Back to Rahul Rao then who witnessed several market ups and downs but remained disciplined, maintaining his regular investment cycle. 

He trusted his uncle’s advice to stay invested for the long term, weathering volatile periods. Meanwhile, India’s economy flourished and the companies that Rahul had invested in prospered. Fast forward to 2024 and we find that Rahul is now an entrepreneur with his own software company. His initial investment has grown manifold. The power of compounding and India’s growth story has transformed his life. The five stocks that he selected were Titan, Bajaj Finance, JSW Steel, Trent and Pidilite. Between 2004 and 2024, he made a total investment of ₹11,10,000 i.e. parking ₹2.2 lakhs in each stock. These investments are now worth ₹7.7 crore. The above mentioned stocks on an average generated XIRR of 33 per cent! 

Rahul is just one example of the countless journeys of ordinary Indians who have built wealth through equity investing. Their stories highlight the power of starting early, staying disciplined, and choosing the right investment avenues based on their risk tolerance and goals. However, it’s crucial to remember that the stock market is not a ‘get-rich-quick’ scheme. Patience, research, and sound financial planning are the keys to navigating its inherent risks and reaping its potential rewards. With the right approach, you too can unlock the doors to financial freedom and write your own success story through Indian equities.
 

Considerations for Selecting Companies

◼ Barriers to Entry — Look for companies that are operating with higher barriers to enter. Barriers to entry can be based on many factors, including high regulations, lack of specialised workforce, governmental requisite approvals, pre- existing competitors, raw materials cost, and more. Anything that makes it difficult for a company to establish itself and sell specific products to a specific market acts as a barrier to entry 

◼ Competitive Advantages — Look for companies that are aware of and leverage their competitive edge. Be cautious of those companies that don’t seem to be benefiting from any specific advantage, are not aware of it, or are not leveraging it to the fullest. 

◼ Market Share — Ideally, you want to own stocks in growing industries that are also expanding their market share by taking business away from their direct competitors. As long as those trends continue, your investment should perform very well. 

◼ Customer Diversity — Some companies have one or two customers while others have thousands. By having a greater diversity of clients, the company is insulated from shocks that can come from the loss of a few of them. 

◼ Institutional Ownership — When deciding on the merits of an investment, check out the level of institutional ownership, and if it constitutes at least 5-10 percent, view it as a good sign. An even better sign is if you see that the amount is increasing from one period to the next. 

◼ Positioning — Look for stocks that hold a position in the minds of prospects or are culturing and developing one. For example, consider whether a company is promoting its new product in a way that it could establish a place in the minds of its prospects. At the same time, avoid those stocks whose companies don’t seem to represent anything noteworthy.
 

METHODOLOGY 

DSIJ 150: The Method and The Logic 

Extensive research has led to the selection of India’s top 150 companies which have created wealth for their promoters, shareholders and the society at large. We have applied a professional approach and method in this selection process as explained below. This year’s list marks Dalal Street Investment Journal’s ninth year ranking of India Inc. and presenting the DSIJ 150. This is a result of a meticulously laid out process. What follows is a detailed description of the various steps that have been followed. For this study, we began with all the listed companies in India. Since our objective was to focus on companies that have been superachievers, a ‘short period’ study would not have been justified. Therefore, we spread our period of study over the past five years. A long-term study evens out any aberration in the results of any particular year and helps in providing a fair idea of long-term performance. We have deliberately left out certain categories and companies from our study of Elite 100. These include - Banking and Non-Banking Finance Companies. The reason for excluding banking and NBFCs from our study is due to the difference in the nature of their business and the way they should be evaluated.
 

THE PARAMETERS

Broadly speaking, we have sought to analyse and rank companies based on the following parameters:

◼ Growth
◼ Efficiency
◼ Safety
◼ Wealth creation 

Growth: The most important criterion for determining a company’s success is, naturally, the growth that it achieves over a period of time and also its capacity for growth in the future. Growth for a company can be defined in many ways. The most important and critical among these is the top-line which is defined by the sales or revenues of the company. The next growth factor is the operating profit which defines the operational performance of the company. Then comes the net profit which defines the eventual benefit to stakeholders either to be used this year in the form of dividends or can be invested to reap its benefit in the coming years. 

Efficiency: It is not only the growth that matters but also how effectively and efficiently this is achieved. The more efficiently an organisation uses its resources, the higher the value that it creates for its stakeholders. Having said that, we have measured efficiency based on the following factors - operating profit margins (OPM), net profit margins (NPM) and return on capital employed (RoCE). The OPM and the NPM together capture the efficiency of a company at the operating and the net levels, respectively. The RoCE, on the other hand, indicates how good a company is in utilising its funds. ROCE is a good indicator of a company's efficiency because it measures the company's profitability after factoring in the capital used to achieve that profitability. These parameters are evaluated on a relative basis for the current year. 

Safety: Our recent experience shows that debt has become a big pain for many companies with the servicing cost escalating over a period of time. Therefore, we have used the debt-to- equity ratio to measure the safety of capital of the company’s shareholders. 

Wealth Creation: The ultimate objective of any organisation is maximising the shareholder’s return. Hence, this had to be one of the criteria for our study. To evaluate companies on this front, we have looked at the movement at share prices in the last five years after adjusting for splits and bonuses. We have considered a total return given by these companies and not just a simple price return. This is because total return captures both the capital gains and the income generated from dividends. The latter provides a much more complete picture of performance — especially for stocks that have high dividends. 

THE RANKING METHOD

After having laid out the data according to the various parameters as discussed above, we then embarked on the final step of ranking these companies. We have carefully assigned weights to each of the parameters. Even within that, companies in different stages of their evolution have been assigned weights according to the requirement. This led us to the creation of two broad categories. One, where we considered companies with a market capitalisation over ₹10,000 crore and another, where we considered companies with a market capitalisation of less than ₹10,000 crore but exceeding ₹1,000 crore. Accordingly, a higher weight has been assigned to the growth factor in the case of companies with a market capitalisation of more than ₹10,000 crore, the reason being that these companies are far ahead on the safety curve. They have been in the business for a greater duration and have achieved critical mass by now. What is important in their case is the growth factor that will propel them into the next orbit. Safety and efficiency have been assigned an equal weightage for the same reasons as mentioned above. On the other hand, growth and safety have been weighted at an equal level in the case of companies with a market cap of less than ₹10,000 crore but over ₹1,000 crore. Shareholder returns have been given due consideration for both categories. Based on all these factors, a final composite ranking of companies in both categories was arrived at. This gave us a list of the top 50 companies in the first category (market capitalisation above ₹10,000 crore), which is our ‘Super 50’ club. The top 100 companies in the second category make up our ‘Elite 100’ group.
 

Click here to download list of Elite 100 companies
 

Click here to download list of Super 50 companies
 

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