Raamdeo Agrawal & Motilal Oswal conducted an in-depth study to determine what type of stocks had created the greatest wealth for investors. The answer, revealed in a study called “16th Wealth Creation Study” proves that it is the blue chip stocks that have consistently created wealth for investors, year after year.
In his latest interview to the ET, Raamdeo Agrawal offered precious advice to investors on what their attitude should be and what stocks they should buy.
Banking stocks are Raamdeo Agrawal’s favourite and so his first stock pick was State Bank of India (SBI) the venerable PSU Blue Chip banking stock. He pointed out that he had been consistently buying the SBI stock since 2001 when it was quoting at just Rs. 200. In 10 years, SBI has been a 10-bagger but it still has tremendous value, Raamdeo Agrawal said with a twinkle in his eyes.
Raamdeo Agrawal pointed out that SBI was quoting at a reasonable valuation of less than 2 times its book value. SBI was consistently growing at about 15% and there was a good chance that it would quote at a valuation of about 2.5 times book. If that happened, then SBI’s book value in 5 years would be about Rs. 3000 and if the market was willing to pay a P/BV of 2.5 times, SBI’s market price would be close to Rs. 7,000 giving investors a 200% gain over the CMP. Even if the market continued to value SBI at 2 times book, investors would still make money, apart from dividends, Raamdeo Agrawal said.
Raamdeo Agrawal’s logic makes a lot of sense because apart from the definite capital appreciation that SBI will give, there is also a lot of peace of mind that your money is safe as you have invested in a blue chip stock that enjoys a virtual sovereign guarantee.
Raamdeo Agrawal’s other favourite stocks were of the same mould. He urged investors to follow the strategy of investing in companies which were “champions of business” and which have “huge economic value” such as Nestle, Asian Paints, HDFC Bank, Bajaj Auto, Hero Honda and Maruti. He emphasized that these companies are so dominant in their respective sectors that they have a great habit of making money irrespective of apprehensions from all concerned. He cited the shining example of HDFC Bank which is making 20-25% return for the shareholders, year after year.
These stocks would continue to provide an excellent wealth creating opportunity over the next 3 to 5 years as well, Raamdeo Agrawal said.