For stock traders, the year 2020 has been a true roller-coaster ride: from the worst selloff in equities in more than a decade triggered by the coronavirus pandemic to the benchmarks scaling new peaks. And as the year-end nears, Motilal Oswal sees “a lot more promise” in the future.
The brokerage recommended 25 stocks, including Ajanta Pharma Ltd., Alembic Pharma Ltd., HDFC Bank Ltd., Bajaj Finance Ltd., ICICI Securities Ltd., Varun Beverages Ltd. and Page Industries Ltd., that are likely to be wealth creators—should outperform the S&P BSE Sensex—over the next 25 years. These companies, according to Motilal Oswal 25th Wealth Creation Study 2020, meet the ‘Quality, Growth, Longevity, (reasonable) Price’ parameters.
The process to identify the next wealth creators:
- Motilal Oswal started with a list of 150 mid caps
- It preferred consumer-facing companies. Cyclical businesses like auto ancillaries, capital goods, chemicals, oil & gas and realty were eliminated
- It chose companies with return on equity of the last five years being greater than 15%. This reduced the list from 114 to 63
- Judged the business potential and management potential of the companies, and selected only those that qualified on both counts. This reduced the list from 63 to 28
- Selected market leaders from the list of 28 companies to arrive at 13
- Also from the 28 companies, it selected five beneficiaries of value migration. That took the total list of shortlisted stocks to 18
- The brokerage resorted to large caps for financial services as it’s a “risky business”. It chose six leader names for the portfolio, taking the total to 24.
- It opted for one pure digital play, even if it did not meet some of the above filters.
Valuations, the report said, were ignored in short listing as they matter less in the long run.
The complete list is as follows: