Reliance Industries has been the biggest wealth creator over 2014-19, according to the Motilal Oswal 24th Annual Wealth Creation Study 2019, which was released on Wednesday. According to the report, the top 100 wealth creators created Rs. 49 lakh crore of wealth during 2014-19, while five of the biggest wealth creators were from the financial sector.
While Reliance Industries is the biggest wealth creator after a gap of seven years, Indiabulls Ventures is the fastest wealth creator for the second time in a row. On the other hand, Bajaj Finance has the unique distinction of being in the top 10 biggest as well as fastest wealth creators. IndusInd Bank has emerged the most consistent wealth creator by recording the highest price CAGR of 49% over the 10-year period 2009 to 2019, ahead of Pidilite Industries, which delivered 40%.
HDFC Bank was at second spot followed by TCS and HUL. Kotak Mahindra, Bajaj Finance and Infosys were some other companies that featured among the top 10 wealth creators. Financial sector companies topped wealth creation, whereas telecom sector companies performed poorly with only one company successfully creating wealth.
Vodafone Idea was the biggest wealth destructor followed by Tata Motors, ONGC and Sun Pharma. Reliance Communication, Adani Enterprises and Reliance Power also featured in the list of wealth destructors. Given the corporate governance issue faced by Indian companies in the last few years, this study attempts to gain some insights into management integrity. Motilal Oswal's approach to equity investing is called 'QGLP' (Quality, Growth, Longevity, reasonable Price). QGL is the value component, which is then juxtaposed with P i.e. reasonable Price. The recent past wealth creation studies have probed into various aspects of QGLP. This study attempts to gain some insights into management integrity.
The report states that management integrity typically gets compromised when a weak board of directors fails to challenge the senior management on issues like accounting policy, related-party transactions, senior management compensation, etc. Other conditions are when there are management teams, devoid of checks and balances, invariably led by an alpha leader who takes all major corporate decisions and auditors lacking objectivity, independence and due diligence.
"Auditors must be made more accountable to minority shareholders to avoid Sharp Practices by the management. As an investor, have a forensic mindset to get management's explanation for all the perceived Sharp Practices. Finally, interact with various stakeholders - customers, employees, suppliers, competitors, etc - till you arrive at that moment of Management Integrity," said the report. Sharp practices may be defined as "ways of behaving, especially in business, that are dishonest but not illegal".
There are 19 companies such as SBI, ITC and L&T, among others, that created enough wealth to qualify among the 100 biggest wealth creators, but failed to make it to the final list as their stock return CAGR was lower than the Sensex, which was 11.6% during 2014-19.