If I had the technology to send a message back in time, I would tell my father in 1980 to “Use Rs.10,000 to buy 100 shares of Wipro as a one-time investment and never sell it for the next 30-35 years.” If he had done that his investment would now be worth about Rs.741 crores. Yes, you read that right. Crores, not thousands or lakhs.
This is one of the common examples given when people come into investing in shares in India. Almost every Indian blog about investing in stock markets gives this example and I also post this here as requested by a reader. A lot of people think that it is a lie and don’t believe it, but it is possible and there are numbers to prove it.
Rs.10,000 to Rs.741 Crores
Let’s just assume that you bought 100 shares of Wipro each at a face value of Rs.100 in the year 1980. Total investment: Rs.10,000. You don’t touch it at all, no profit booking or buying more shares. Occasionally companies provide benefits to its shareholders by way of corporate actions. They could provide bonus shares for shares that you hold, they could do a stock split where a high face value share would be broken down into smaller face value shares but the number of shares increases proportionately, etc.
Wipro has done various such bonuses and stock splits in its history of 1980-2017. Lets now see the different corporate actions and how the number of stocks would’ve grown.
|Year||Action||Number of Shares||Face Value|
|1980||Initial Investment||100||Rs. 100|
|1981||1:1 Bonus||200||Rs. 100|
|1985||1:1 Bonus||400||Rs. 100|
|1986||Stock split to FV Rs.10||4,000||Rs. 10|
|1987||1:1 Bonus||8,000||Rs. 10|
|1989||1:1 Bonus||16,000||Rs. 10|
|1992||1:1 Bonus||32,000||Rs. 10|
|1995||1:1 Bonus||64,000||Rs. 10|
|1997||2:1 Bonus||1,92,000||Rs. 10|
|1999||Stock split to FV Rs.2||9,60,000||Rs. 2|
|2004||2:1 Bonus||28,80,000||Rs. 2|
|2005||1:1 Bonus||57,60,000||Rs. 2|
|2010||2:3 Bonus||96,00,000||Rs. 2|
|2017||1:1 Bonus||1,92,00,000||Rs. 2|
After the year 2017, there were no more bonuses or stock splits. But with just that initial investment of Rs.10,000 (100 shares) you now would end up with 1,92,00,000 shares of the company because of all the stock splits and bonus shares. The current stock price of Wipro is about Rs.386 per share, as of 26 February 2019.
Rs.386 × 1,92,00,000 = Rs.741,12,00,000 or about Rs.741 crores. That is a CAGR (Compound Annual Growth Rate) of 41.42%. Does any of your bank FD give you a 41% annual interest rate? It was all possible because of the free shares that the company gave to its shareholders as an incentive for investing in their company. If you immediately needed to liquidate this entire holding today (urgent need for >Rs.700 crores?), you can do it and you would have to pay a very small long term capital gains tax on it (which was recently introduced).
How about an additional yearly payout of Rs.1.92 crores?
If you thought that Rs.741 crores out of a meager investment of Rs.10,000 were unbelievable, here comes another shocker. Every year the company announces dividends from its operating profits for its shareholders. As a shareholder, you would also get this benefit for how many ever stocks you hold.
For example, the last year 2018, the company announced Re.1 per share as dividends. So you get back Rs.1.92 crores just for holding the shares. Until recently dividends were also not taxed. But now any aggregate dividend above Rs.10 lakhs is taxed at 10%.
For a comparison, just calculate your (or your dad’s) current salary per annum and imagine getting a crore every year as additional income. How does this Rs.10000 investment compare to all the other money invested in other products like real estate or gold? No other investment would’ve given you such returns and dividends every year. If only my dad had the surplus money to invest in this.
Has anybody really done this? Can I go buy Wipro now?
As the saying goes “hindsight is 20/20”, we can calculate all this only after the company has grown from selling vegetable oils, soaps to becoming an IT major. Had everyone known that this cooking oil company would give such returns in 1980, everyone would have invested in this and become billionaires. Also, the shares wouldn’t have been listed on any exchange in 1980 and you would have had to invest privately into the company. Buying Wipro now wouldn’t give you the same returns as the company is already grown to such proportions and such a large-cap stock giving multi-fold returns is very hard.
How can I get returns like this?
There have been numerous such companies that have given great returns to investors, like Reliance, Titan, Dr. Reddy Labs, etc. No one can predict which company would grow to such a huge level before 30 years. Remember, for every story like Wipro, there are thousands of companies that have eroded investors’ wealth and become penny stocks. Investing in equities alone isn’t enough, investing in the right company at the right time is even more important.
Even if someone invested in the best company in the world, its basic human psychology to book profits when the stock prices increase so many folds. Some investors don’t feel comfortable even for a 50% increase in their investment. No one would have the patience to hold such a stock when he sees how volatile the market is in the short-term.
If you really want such phenomenal returns, you would have to do a lot of fundamental research, do your due diligence on the company and invest in it when it’s in the early stages. Most important of all is, staying invested in the company for the really long-term to reap the entire benefits.