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Penny stocks to buy: Investing in the stock markets needs skill, foresight and a lot of patience. While timing the markets to catch the falling knife is not easy, one truly needs foresight to evaluate a company, its business model and the potential.
Had you invested Rs 10,000 each in JSW Steel, Titan Company and Bajaj Finance 20 years ago, when they were just penny stocks (trading below Rs 10), you would have become a millionaire by now.
JSW Steel stock that traded at Rs 1.02 levels back in August 2004 is now hovering around Rs 940 levels, translating into a huge 923 times (x) return in the last 20 years. Rs 10,000 invested in this stock back in August 2004 is worth Rs 92.3 lakh now.
Similarly, Bajaj Finance and Titan Company stocks have seen a massive surge of 868x and 520x respectively during the last 20 years, ACE Equity data shows. Rs 10,000 invested in these counters is now worth Rs 86.8 lakh and Rs 52 lakh, respectively.
That said, it should be noted that the 2004 prices are adjusted for bonus issues and stock splits announced by some of these companies.
For instance, Titan had announced a stock split in April 2011, wherein investors got 10 shares of Re 1 face value each for every share of face value of Rs 10 held. Later in June 2011, it announced a one-for-one bonus shares. So effectively, an investor holding 100 shares in April 2011 would end up 2,000 shares post the stock split and bonus issue.
Similarly, Bajaj Finance has also made a five-for-one stock split in July 2016 followed by a one-for-one bonus issue in September 2016, while JSW Steel made a ten-for-one stock split in October 2016.
For instance, Titan had announced a stock split in April 2011, wherein investors got 10 shares of Re 1 face value each for every share of face value of Rs 10 held. Later in June 2011, it announced a one-for-one bonus shares. So effectively, an investor holding 100 shares in April 2011 would end up 2,000 shares post the stock split and bonus issue.
Similarly, Bajaj Finance has also made a five-for-one stock split in July 2016 followed by a one-for-one bonus issue in September 2016, while JSW Steel made a ten-for-one stock split in October 2016.
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These three stocks top the 20-year return chart amongst the counters that comprise the Nifty 50 index now. Eicher Motors, Asian Paints, Adani Enterprises, Divi’s Laboratories, Britannia Industries and Apollo Hospitals are some of the other stocks that comprise the Nifty 50 index now, and have given a phenomenal return during the last 20 years, ACE Equity data shows.
By comparison, the Nifty 50 index has gained 1,455 per cent during this period.
So, what’s fuelled this massive surge in JSW Steel, Titan Company and Bajaj Finance over these years?
A common thread in the last 20 years, analysts said, is that they were ‘consistent growth stories’ of their time and were more focused on India rather than foreign markets for this growth.
"India grew at a brisk pace in the last 20 years at around 6 – 7 per cent and these companies were well-positioned to capitalize on this. JSW Steel, for instance, focused on its India operations, built capacity at the right time and ended up a winner. Similarly, Titan Company and Bajaj Finance are solid growth stories that were more focused on building India operations in the last 20 years," said G Chokkalingam, founder and head of research at Equinomics Research.
From a manufacturer of steel 20 years ago, JSW now also focuses on cement, energy, infrastructure and paints. Bajaj Finance, on the other hand, is one of the largest players in the Indian consumer finance space. It also has substantial business penetration in SME, commercial and rural lending.
Titan Company – a joint venture between the Tata Group and the Tamil Nadu Industrial Development Corporation (TIDCO) – is the fifth largest integrated own brand watch manufacturer in the world, reports suggest. It is widely known for transforming the watch and jewellery industry in India in the last decade, and also has a presence in the eyewear segment.
"Focus on manufacturing, rise in demand that was met by volume growth worked well for JSW Steel. What worked well for Titan was expansion into other business segments besides watches, such as jewellery and eye care and acquisitions like Caratlane. Bajaj Finance’s success story shows the demand for credit in a booming economy, and the rural penetration that the company built over the years. We have a ‘buy’ rating on all these stocks even at the current levels," said Gaurang Shah, head investment strategist, Geojit Financial Services.
While the last 20 years have seen phenomenal growth in these companies and its stocks, analysts caution that replicating this story in the next 10 years can be an uphill task.
"It will be difficult for these companies to replicate this pace of growth of the last 9 – 10 years in the next 10 (years). Stocks of these companies also benefited from expansion in price-earnings (PE) multiple as well. There is not much room for further expansion in valuation multiples. The base of the business has also grown a lot in the last 10 years, which may be difficult to expand going ahead, but not impossible," Chokkalingam said.
Bonus History
Stock Split History
FV: face value
Source: Capitaline
Compiled by BS Research Bureau
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