A study on wealth creation by Raamdeo Agrawal, joint managing director of Motilal Oswal

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Financial Services, has identified 48 companies that could emerge as multi-baggers for stock investors.

Agarwal, a stock picker himself, said the 48 companies fall in the category of ‘blue chips or potential blue chips’ and were identified from among 3,000 listed companies.

The study has applied eight screeners to identify potential blue chips. The five quantitative criteria applied were — uninterrupted dividends for the past five years, increase in earnings per share (EPS) in at least three of the past five years, dividend increase in at least two of past five years, not less than 15 per cent return on equity (RoE) in any of the past five years and five-year profit after tax (PAT) CAGR of at least 10 per cent.

The study also applied three qualitative criteria —— dominant player in line of business, huge size of opportunity and prima facie competent management. The above criteria threw up 20 recognised blue chips i.e., stocks with market capitalisation in excess of Rs 10,000 crore and 28 potential blue chips.

The 20 recognised blue chips are Axis Bank, Bhel, Cadila Healthcare, Canara Bank, Castrol India, Coal India, Godrej Consumer, HDFC Bank, Jindal Steel, Lupin, NMDC, Oil India, Petronet LNG, Punjab National Bank, Rural Electrification Corporation, Shriram Transport, Sun Pharma, Sun TV, TCS and Ultra Tech Cement.

The potential blue chips are BGR Energy, Biocon, Coromandel International, Crompton Greaves, Deepak Fertilisers, eClerx Service, Emami, GRUH Finance, Guj Gas Company, Hawkins Cookers, Indraprastha Gas, Info Edge (India), Kansai Nerolac, Karur Vysya Bank, M&M Financial, Mahindra Holiday, Manappuram Finance, Opto Circuits, Page Industries, Rupa & Company, Shriram City Union, Talwalkar Better Value, TD Power System, Thermax, TTK Prestige, Voltas, VST Tillers Tractors and Zydus Wellness.

According to the study, Reliance Industries was the biggest wealth creator for the fifth time in a row since 2007, a record, beating HUL’s four times record in a row from 1996 to 1999.

Sanwaria Agro emerged as a surprise fastest wealth creator, adding Rs 4,300 crore to its market cap at a CAGR of 119 per cent per annum. But most of the fastest wealth-creating companies have lost anywhere between 30-98 per cent of their peak value in the next three years.

According to the study, Kotak Mahindra Bank, Sun Pharma, Asian Paints, HDFC and HDFC Bank — are at the top of the list of 10 most consistent wealth creators.

“Private sector financials are emerging as blue chip stocks with high and, more importantly, consistent growth performance. For example, HDFC Bank has delivered 30 per cent PAT growth for the past 38 consecutive quarters,” Agrawal pointed out.

The other five are Reliance Industries, ACC, Infosys, ONGC and Ambuja Cements.

“For the first time ever, the financial sector has emerged the largest wealth creator. Financials steadily increased the share of wealth from 12 per cent in FY06 to 24 per cent in FY11. At Rs 5,19,400 crore, wealth creation by the financial sector was the second highest ever by any sector in a span of five years, after oil & gas in the peak of the commodity boom over 2003-08,” the study said.

The study named top wealth destroyers of the past five years, where Suzlon Energy tops the list followed by Reliance Communication, Satyam Computers, MTNL, Bajaj Hindustan.

The study in its market outlook said, “Over a four-year period, the market has the potential to double from its present level.” On the ongoing bearish sentiment, Agarwal urged investors to look at the positives.

“People are not looking at positives. Car sales have grown 22.22 per cent in November compared with November 2010,” he said. Also, the overall car sales growth rate recorded for April-November was 13.08 per cent. Airlines have registered over 20 per cent higher capacity utilisation.

“Single-digit earnings growth and high interest rates have brought down market valuation to 0.64 times market-cap to GDP and 13 times year forward P/E multiple. At these valuations, downside looks limited,” the study said in its market outlook.

“Upside will depend on the decline in inflation and the consequent fall in interest rates,” the study said.