Your Money: Financial services lead in wealth creation

During 2016-21, while Sensex’s CAGR was muted at 14%, the pace of wealth creation was healthy at 24% CAGR

So, investors are better off focusing on which stocks to invest in, rather than timing the markets.
So, investors are better off focusing on which stocks to invest in, rather than timing the markets.

Between 2016 and 2021, the financial sector was the largest wealth creating sector and is likely to spearhead wealth creation for quite some time in the future, says the Motilal Oswal 26th Annual Wealth Creation study. Reliance Industries is the largest wealth creator for the third time in succession with total wealth created at Rs 9.7 lakh crore, the highest ever surpassing its own record of Rs 5.6 lakh crore in 2014-19. The study says Adani Transmission is the fastest wealth creator with a price CAGR of 93%. Adani Enterprises ranks the third fastest wealth creator. In fact, Adani Enterprises has emerged as the Best All-round Wealth Creator, followed by group company Adani Transmission.

During 2016-21, while Sensex’s CAGR was muted at 14%, the pace of wealth creation was healthy at 24% CAGR indicating that wealth creation happens in all kinds of market conditions. So, investors are better off focusing on which stocks to invest in, rather than timing the markets.

Losing out
The wealth creation performance of state-owned companies was the worst during the period 2016-21. The study says there are only two public sector companies (PSUs) in the top 100 wealth creators and the wealth created by these two PSUs —Gujarat Gas and Indraprastha Gas—is less than 1% of the total.

The total wealth destroyed during the period 2016-21 is Rs 11 lakh crore, which is 15% of the total wealth created by top 100 companies. Five of the top 10 wealth destroying companies are in the public sector. Interestingly, the financial sector is both the top wealth creating and top wealth destroying. While the private sector banks and non-banking financial companies were wealth creators, their public sector peers were the wealth destroyers, according to the study.

Atoms to Bits
Globally, there is a shift from Atoms, which do businesses dealing in physical matter, to Bits, which are digital in nature. Unlike Atoms, Bits deal in intangible assets, enjoy very low cost of replicating their offering, and benefit from network effects. These factors enable Bits firms to scale up very rapidly. The success of Bits companies centres around rapid growth in order to achieve critical mass. While Atoms use financial capital to acquire physical assets which reflect in their balance sheet, Bits mainly use human capital to self-generate intangible assets, (e.g. technology platform), which gets fully charged to the income statement, resulting in optical loss.

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