Motilal Oswal is releasing its latest Wealth Creation Study for 2024 on December 10, in which the broking and asset management company has talked about creating wealth through 'Bruised Bluechips', or quality companies that have not been delivering returns.
The wealth study said the underperformance of these bluechips could range from market events, external factors, misallocation of capital, change in competitive landscape or regulation. Raamdeo Agrawal told CNBC-TV18 that the 'asymmetric payoff' here is an huge opportunity to invest. "When these companies come back, they come back roaring," added Raamdeo.
"Assuming there is no structural decline in the companies’ fundamentals, such bruising offers a golden opportunity to build large positions in these aspirational Blue Chips," the wealth study added.
What are Bruised Bluechips
The Nifty 50 index remains a key quotient of this framework, as the presence of bluechips in the index makes it 'tough' to beat Nifty returns in the long run.
Aside of the Nifty 50 names, Motilal Oswal has assigned the definition of companies generating 20% RoA over past ten years as a bluechip, which has qualified 107 companies as part of this framework of study.
The MOSL Wealth Study assigns the following characteristics to bruised bluechips:
-Aspirational investments, but 'mostly' richly valued
-Bought near lows will offer handsome returns
-Probability of permanent loss of capital is low
-Wealth creation in last 5 years is highest ever
The report mentions that any permanent loss of capital is an unlikely scenario under this study. "There were 99 Bruised Bluechips in our study of seven rolling 10-year periods ending 2018 to
2024. Of these, every single company continues to exist today. Thus, by investing in Bruised Blue
Chips, mortality is near-zero and risk of permanent loss of capital is low," MOSL Wealth Study added.
How Bruised Bluechips were Assessed
-Companies that have fallen more than 50% from their five-year highs
-The reasons for the bruising of the company
-The shares are near the point of maximum pessimism
-The companies should have the competence to come back
-Healing triggers before finally deciding on buying, only after valuations get attractive
The Motilal Oswal study attempts to generate wealth from turnaround stories in the economy. "The best time to buy these names is when is are in a bit of trouble," Raamdeo said, adding that the pursuit for 'robust bluechips' always leads to stocks with very expensive valuations, hence Motilal Oswal developed this framework.
Key Highlights
Reliance Industries has emerged as the biggest wealth creator for the sixth time in a row over 2019-24.
Linde India was the most consistent wealth creator, based on the number of years the stock has outperformed in each of the last five years. Only six out of 100 companies have outperformed in each of the five years.
Market Outlook
Raamdeo Agrawal sounded optimistic about 2025, and said it will be a 'fantastic year'.
'Next year, even if FIIs invest $20-25 billion, we will have a party', Raamdeo added. The CY24 has seen an inflow of $60 billion from domestic investors, which cushioned the intense selling from foreign investors. He added that Centre's focus on capex will lead to capital goods, defence and railway plays continue to find a favour in 2025 as well.
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