Consumer and financial companies have led wealth creation in the secondary market during the last five years, shows the Motilal Oswal wealth creation study. The consumer sector has bounced back into wealth creation between 2007-2012, with ITC as the biggest and TTK Prestige as the fastest wealth creator, and Hindustan Unilever gaining back a place in the top ten. Financials emerged as the largest wealth creating sector, owing to absence of new entrants that lead to widespread profitability and stock performance.
ITC, HUL and Tata Motors boasted amongst the top ten wealth creators from the consumer space. HDFC Bank, HDFC and State Bank of India represented the financial sector as the third, fifth and sixth biggest wealth creators. IT majors, TCS and Infosys, that stood at the second and seventh position, respectively, concluded the list along with Jindal Steel.
ITC not only topped the list for the first time, but also managed to break the 8-year long-hold of oil & gas companies — Reliance Industries in the last five years and ONGC in the three years prior to that — as the biggest wealth creators.
After adjusting for equity dilution, the study checked the change in the market-cap of the companies to arrive at the top ten wealth creators. The study also applied an additional criterion of market out-performance. The companies features in the list, thus, had to beat the 6% CAGR growth posted by the Sensex in the last five years. As a result, names like ONGC, Reliance Industries, Wipro, Hindalco, NTPC and Bhel, did not make it to the list.
According to Motilal Oswal Financial Services joint managing director Raamdeo Agarwal, a comapny's competitive advantage in its industry termed as its 'Economic Moat' is a key factor influencing its wealth creation through sustained profitability.
As per the study, between 2003-2012, a group of 29 such EMCs (economic moat companies) from the Nifty universe surpassed the benchmark CAGR return of 16% by yielding 22% on average.
The list of fastest wealth creators with a 5-year CAGR price gain of more than 38%, was dominated by consumption-driven companies and financial stocks like TTK Prestige, LIC Housing Finance, Eicher Motors, IndusInd bank, Bata India, Tital and GSK Consumer.
Reliance Communication topped the list of the wealth destroyers in the last five years, followed by Unitech, Suzlon Energy, Bharti, SAIL and Tech Mahindra among others.