Is it riches-to-rags in long run? :: Business Line

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While business health has been a key factor, industry fundamentals have also played a role in determining the fortunes of specific companies. Investors who had exposure to 226 stocks, lost over 90 per cent of value in the last twenty years.

Equities are often claimed to be long-term investment bets. But do all equity investments fetch handsome returns if you merely buy and hold? Looking back on the last twenty years, though select businesses have delivered impressive returns for their shareholders, a majority of them have eroded investors’ wealth. An analysis of 1,108 companies that traded on the Bombay Stock Exchange during the period January 1993-2013 reveals this. We considered stock prices adjusted for bonuses and stock splits.

In the last twenty years, the Sensex witnessed nearly an eight-fold increase, delivering annualised gains of 11.4 per cent. The index rose from 2,534 in January 1993 to 19,895 by end of January 2013. But only 14 per cent of the 1,108 companies that were listed in 1993 succeeded in beating Sensex returns during this period; 319 companies, constituting 29 per cent of the universe, managed to deliver gains, albeit lower than the Sensex.

But 631 stocks, which account for 57 per cent of the universe, declined in the last two decades. Further, trading was suspended in over a fourth of the universe, putting investors’ money in a virtual death trap. This highlights the importance of stock selection and timing in equity investments.

WEALTH CREATORS

Among the stocks listed since 1993, Wipro has been the largest wealth creator. The stock, which traded at Re 1 (adjusted price) in January 1993 traded at Rs 410 by end of January 2013, translating into a 37 per cent annual gain. Shift in focus from hardware to high-margin software business helped the multi-fold growth in the technology major’s market capitalisation from a small-cap to a large-cap stock. Wipro’s market capitalisation rose from Rs 220 crore in 1993 to over Rs 1 lakh crore by end January 2013.

While business health has been a key factor, industry fundamentals have also played a role in determining the fortunes of specific companies. For instance, battery maker Amara Raja Batteries (which also supplies to telecom towers) was a key beneficiary of the telecom boom beginning 2001.

This enabled a ten-fold jump in profits in the last 12 years.

Strong demand for two-wheelers in India, driven by steady increase in the average disposable income and easier credit availability, powered Hero Motor Corp’s sales and profits in the last two decades. Strong financial performance on account of sound business fundamentals drove the two-wheeler major’s stock from an adjusted price of Rs 12 in January 1993 to Rs 1,823 by end January 2013, raking in annualised gain of 30 per cent.

For drug maker Cipla, robust export sales, supported by steady domestic growth, gave a strong leg-up. As a result, the company’s stock price witnessed a remarkable jump, from Rs 3 in 1993 to Rs 407 currently. Cipla’s stock delivered annual returns in excess of 29 per cent over the last two decades.

Robust economic activity and easy access to finance led to higher tractor and commercial vehicle sales in the last two decades. This had a positive rub-off on stocks of Eicher Motors and Mahindra and Mahindra, which gained 26 per cent and 23 per cent annually since January 1993.

Higher discretionary spending and real-estate boom benefited the stocks of paint producers Berger Paints and Asian Paints, which gained 26 per cent and 25 per cent, respectively, on an annualised basis in the last twenty years.

Foray into jewellery segment was the key success mantra for consumer major Titan Industries. The stock almost gained 25 per cent annually during the period January 1993-2013. Other stocks that figure among the top gainers include realty major Unitech, pharma multinational AstraZeneca, IT player Satyam Computer Services and distiller Radico Khaitan, to name a few.

VALUE DESTROYERS

It has been ‘riches to rags’ for investors who had exposure to 226 stocks which lost over 90 per cent of value in the last twenty years. A good number of textile stocks feature in the worst performers over the last two decades. NRC, Uniworth, Punjab Woolcombers and Jamshri Ranjitsinghji Spinning and Weaving Mills topped the list, losing in excess of 99 per cent during the period 1993-2013. The stock of Rayon player NRC which traded at Rs 1,650 in January 1993 is down to Rs 4 currently. Other losers in the textile space include JCT, Ashnoor Textile Mills and Oswal Spinning and Weaving Mills.

Similarly, investors in financers Lloyds Finance and Apple Finance have lost in excess of 98 per cent in the last twenty years. The stock of Apple Finance, which traded at Rs 115 in January 1993, now trades at less than Rs 2. Stocks of entertainment content providers GV Films and Pentamedia Graphics also figure among the top losers. GV Films’ stock tanked over 98 per cent in the last two decades, from Rs 28 in 1993 to Rs 0.5 currently.

Stocks of glass makers Triveni Glass and FGP Ltd, forging company Amforge Industries, IT player Triton Corp, wind equipment maker NEPC India and paper producer Aurangabad Paper Mills also figure in the losers list.

SUSPENDED STOCKS

It’s not just about gainers and losers, a good number of stocks have been barred from trading in the exchange for various reasons. Trading in stocks of 28 per cent of the BSE universe has been suspended. A large number of them have been suspended for penal reasons, while some others have been barred for other procedural reasons.

Stocks of telecom equipment manufacturer Webel Communications, textile player Bonanza Industries, detergent producer Continental Chemicals, engineering company Incorporated Engineers Ltd and Nagarjuna Finance Ltd are among the stocks suspended from trading for penal reasons.

Similarly, stocks of software player Cauvery Software Engineering, financier Bagalkot Udyog, textiles company Arihant Industries and sugar producer Willard India feature in the list of stocks barred from trading for procedural reasons.

EQUITIES, INFLATION AND GOLD

While long-term equity returns have been a mixed bag with just select companies delivering handsome returns, how have other asset classes fared over the same period? Have equities managed to beat inflation? Read on.

The Sensex returned annualised gains of 11.4 per cent, higher than the 7.9 per cent rise in the Industrial Workers’ Consumer Price Inflation. But only 22 per cent of the universe (245 out of 1,108 stocks) managed to beat inflation. Gold as an asset class fared better than equities in the last two decades.

Gold (in rupee terms) delivered 12.6 per cent annualised gains higher than the Sensex and inflation. Interest rate for term deposits for five years and above witnessed a wild swing, ranging between 5.25 per cent and 13 per cent in the last two years.