Market veteran Raamdeo Agrawal believes one should have a clarity on the difference between a speculative trade and investing in a potential multibagger. Agrawal says if a retail investor is looking for a 10 times jump in a stock price in five years, he would probably have to look at speculative trades. On the other hand, a 10 times return in 10 years, Agrawal says, is decent -- 25 per cent return compounded annually, and would be considered a 'multibagger'. To achieve such a return, Agrawal says a retail investor needs to identify companies that can deliver a 25 per cent growth in earnings over the next decade.
In an interview to BT TV, Agrawal said if the investor got his projections right, he may end up seeing 23-28 per cent returns annually over the decade period, thanks to re-rating on the counter.
"If you are conservative in buying price, that is how a portfolio approach works. Out of 10 stocks, you will get 4-5 stock selections right while another 4-5 will deliver mediocre returns. But you will still end up getting 24-25 per cent return annually," Agrawal said.
Agrawal said one has to do homework, focus on the company's earnings, make sure one understands the business of the company well and do spreadsheets for those companies.
Agrawal, who is hopeful about corporate earnings over the next 12 months, said the market delivered 13-14 per cent return annually over the last 35-40 years and that the future is even brighter. Even if one does not assume optimistic estimates and consider the earnings growth in the next 40 years to be similar to the last 40 years, Agrawal said 12-15 per cent returns annually are possible in the long-term.
Agrawal said the $3 trillion Indian stock market should be around $9-10 trillion mark over the next 10 years but wonders whether retail investors have patience to stay put. The market is all about the patience, Agrawal concluded.
He said TCS, Wipro and Infosys were small companies in 2000 but are giants now. One has to give time not only to the company to grow but also to the market itself, he said.
"Look at options volumes, look at futures volumes, people don't want to make money tomorrow; they want to make money in the next half-an-hour. I don't come from that school," Agrawal said.
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