Should you invest? Mumbai’s top broker shortlists 25 midcaps for the next 25 years

Time in the equity market is important than timing the market. Historical data also support the old saying.

The benchmark BSE Sensex has advanced over 800% since the beginning of 2000 with Bajaj Finance rallying more than 1,00,000%. Titan Company, Kotak Mahindra Bank, Asian Paints and Axis Bank also soared over 10,000% during the same period.

If you have patience and looking for quality stocks which can deliver handsome return going ahead, Motilal Oswal Financial Services has shortlisted 25 stocks for the next 25 years.

The list includes players like Ajanta Pharma, Alembic Pharma, Astral Poly Technik, AU Small Finance Bank, Bajaj Finance, Bata India, Bayer Crop Science, Coromandel International, Dixon Technologies, Dr Lal Path Labs, HDFC AMC, HDFC Bank and HDFC Life Insurance.

In the recent price performance, shares of Dixon Technologies rallied 253% to Rs 13,437 on December 31, 2020 from Rs 3,801 on December 31, 2019. Other stocks also jumped between 6% and 90%. However, Bata India and HDFC AMC retreated 10% and 9%, respectively.

The Mumbai-based brokerage firm has also shortlisted Honeywell Automation, ICICI Lombard, ICICI Securities, IndiaMART InterMESH, Max Financial, Mphasis, Muthoot Finance, P&G Health, Page Industries, Syngene International, Varun Beverages and Whirlpool of India. Shares of these companies had advanced between 9% and 210% last year, while the 30-share Sensex pack gained 16%.

In its latest wealth creation study, Motilal Oswal Financial Services said, “Stock returns are slaves of earnings power and growth. In the very long run, valuations matter less. The future always holds a lot more promise. Over 50% of the current market cap is made up of listings post-1995.”

For short-listing the stocks, the brokerage house picked top 150 midcap stocks on the basis of market capitalisation.

It further preferred consumer-facing companies with secular business models. This helped Motilal Oswal to eliminate cyclical businesses like auto ancillaries, capital goods, chemicals, oil & gas and realty.

This exercise reduced the list from 150 to 114. To further cut short the list, it preferred to go with companies with last 5-year average return on equity (RoE) of greater than 15%. This reduced the list from 114 to 63.

Motilal Oswal further cut it to 25 on the basis of business and management potential, market leadership, value migration and digital play.