Reliance Industries biggest wealth destroyer during 2008-13

Wiped out Rs 1.12 lakh crore says Motilal Oswal Annual Wealth Creation Study

Reliance Industries, the biggest wealth creator for five consecutive years from 2007 to 2011, has emerged as the largest wealth destroyer between 2008-13.

Investors in the petroleum major have seen wealth erosion to the tune of Rs.1.18 lakh crore destroyed, according to the Motilal Oswal Annual Wealth Creation Study. The report noted that one-third of the wealth destruction in the period of the study can be attributed to three major ownership groups-the two Ambani brothers and the Government of India.   

The firms which figure in the top ten list of wealth destroyers include Reliance Industries, Reliance Communications and MMTC. Other firms include NMDC, DLF, Reliance Power and BHEL.

“The stock market's perception of ineffective management (including capital mis-allocation, consistent failure to deliver on guidance, low dividend payout etc) is a major source of Wealth Destruction. When the market is disappointed, it does not spare even those stocks which were its darlings till recently,” said the report authored by Raamdeo Agrawal and Shrinath Mithanthaya.

Interestingly, the report also noted that the consumption story, in the form of the consumer and Retail sector which had emerged as the largest wealth creating sector for the first time since 1999,may well have played out.   

“Technology sector is poised to emerge as India's largest Wealth Creator in the near future (TCS is already India's largest market cap company). The current leader, Consumer, enjoys average P/E (Price/Earnings) multiples of 33x, which is over 2x the market average of 15x. This leaves little room for further re-rating. In contrast, Technology sector is valued at 19x, which is reasonable considering its high PAT CAGR coupled with higher-than-average RoE (Return on Equity),” said the report.

TCS has emerged as the biggest wealth creator for the five year period from 2008 to 2013, dislodging ITC which occupied the top spot last year, for the five year period between 2007-2012. The tech major had added Rs.2.28 lakh crore to investor wealth in the last five years.

TTK Prestige has emerged as the fastest wealth creator, with a stock price which multiplied 28 times in five years, or annualized returns of 95 per cent. The most consistent wealth creator has been Asian Paints, having found a place in every study in the last ten years.

The outlook for markets is also positive according to the study. Corporate earnings growth is starting to look up, and valuations look favourable for an upside.

“Market cap to GDP at approx 60% makes markets reasonably priced. Any drop in interest rates will have dramatic effect on equity returns,” it said.