40% CAGR return for a decade! 12 ideas if you want to think long term

As YES Bank exited Nifty on Thursday, paving the way for Shree Cement to enter the 50-pack, some analysts speculated on the next possible entrant in the Club Elite.

Some studies showed over 20 Nifty constituents representing metals, mining, power and infrastructure sectors could exit the index in the coming decade, making way for industry leaders from consumption, insurance, pharma and internet sectors.

Nifty has a churning rate of 40 per cent every decade. This means, 20 of today’s Nifty constituents are highly likely to be booted out over the next 10 years. That should create winning opportunities for investors.


“If you can spot these 20 potential Nifty entrants now, you are likely to make 40 per cent CAGR over the next decade, which is four times the 10 per cent CAGR return made in the last decade,” says Saurabh Mukherjea of Marcellus Investment Managers.

Based on his calculations, Mukherjea picked Pidilite, Berger Paints, Divi’s Lab, Marico, Info Edge, Abbott India, Page Industries, ICICI Lombard, Dabur and HDFC Life as potential candidates to enter Nifty in next 10 years. He said Marcellus is already betting on these stocks, barring the last two.

In last five years, Berger Paints and Abbott India have delivered nearly 184 per cent returns. Pidilite and Info Edge share prices have multiplied nearly two-and-a-half times, while Page Industries is up 37 per cent and Marico 35 per cent.


Chetan Phalke, CEO at Alpha Invesco Research Services adds two more names to the list, Bank of Baroda and SAIL, which he says could enter the index in the coming decade.

“Bank of Baroda is the third largest bank in India, but right now its profitability is suppressed because of NPAs. As they revert to normal, profits can shoot up significantly. It’s a simple logic, the third largest bank in India cannot trade at Rs 42,000 crore market-cap. So, it will reach a certain level where it may become part of Nifty,” he said.

The lender merged Vijaya bank and Dena Bank to itself last year, enlarging the size of its business to over Rs 15 lakh crore. The lender has the second highest number of branches in the country, behind SBI.

However, the bank stock’s performance in last five years has been far from encouraging. Bank of Baroda is down 64 per cent in the period. In the last one year till Wednesday’s close, it has slid 46 per cent.

Similarly, SAIL, which Phalke believes could be a major beneficiary of an expected pickup in domestic steel demand given the major infrastructure push by the government, has dipped 60 per cent in last five years and 50 per cent in last one year till Wednesday’s close.

However, some Dalal Street veterans say being part of Nifty is no guarantee of high returns. Value investor Safir Anand says from an investor’s point of view, it is irrelevant if a stock is part of the coveted index or not.

“Market returns of Avanti Feeds are far better than HDFC Bank or Asian Paints. So, how does it matter if it is part of Nifty or not? The question to ask is: if you see it today, does it look good, is it worthy,” he said.

Avanti Feeds has given a stupendous 18,940 per cent returns in last 10 years compared with HDFC Bank’s 398 per cent and Asian Paint’s 715 per cent.

“If I am a prudent investor, I will only look for money I have and then the opportunity. After that, I will think about the allocation I have to make to migrate or mitigate my risks,” he said.