Having studied how wealth got created in the last 25 years, Motilal Oswal Financial Services thought it an interesting idea to attempt shortlisting 25 stocks likely to deliver handsome returns over the next 25 years.
The 25-for-25 stocks
|1 Ajanta Pharma||10 Dr LalPathlabs||19 Mphasis|
|2 Alembic Pharma||11 HDFC AMC||20 Muthoot Finance|
|3 Astral Poly Tech||12 HDFC Bank||21 P & G Health|
|4 AU Small Finance||13 HDFC Life Insurance||22 Page Industries|
|5 Bajaj Finance||14 Honeywell Auto||23 Syngene International|
|6 Bata India||15 ICICI Lombard||24 Varun Beverages|
|7 Bayer Crop Science||16 ICICI Securities||25 Whirlpool India|
|8 Coromandel International||17 Indiamart Intermesh|
|9 Dixon Technologies||18 Max Financial|
The check list
Motilal Oswal Financial Services started with a list of 150 midcaps i.e. companies ranked 101 to 250 by current market cap.
2. BUSINESS MODEL
It preferred consumer-facing, secular business models. So they eliminated cyclical businesses like Auto ancillaries, Capital Goods, Chemicals, Oil & Gas and Realty. This reduced the list of companies from 150 to 114.
3. VERY PROFITABLE
To ensure this, Motilal Oswal Financial Services chose companies with last 5-year average RoE greater than 15%. This reduced the list from 114 to 63.
4. BUSINESS POTENTIAL & MANAGEMENT POTENTIAL
Next, to the best of our ability, the firm judged the business potential and management potential of the companies, and selected only those which qualified on both counts. This reduced the list from 63 to 28.
5. MARKET LEADERSHIP
Motilal Oswal Financial Services flagged off market leaders from the 28 companies to arrive at a list of 13 companies.
6. VALUE MIGRATION
It also observed that in situations of Value Migration, all companies benefit irrespective of market leadership. So, of the 28 in Point 4, we selected 5 beneficiaries of Value Migration, taking the total list of shortlisted stocks to 18.
7. LARGE CAPS FOR FINANCIALS
Motilal Oswal Financial Services believes Financial Services is quite a risky business, and here size begets size. So, we mainly resorted to large caps for financials, and roped in 6 leader names for the portfolio, taking the total to 24.
8. DIGITAL PLAY
Finally, they opted for a pure digital play, even if it didn't meet some of the above filters, taking the total to 25.
9. VALUATION: We believe in the very long run, valuations matter less. So we ignored the same in the shortlisting process.