Multibaggers Patience, Long Term Horizon Is Key

Identifying multibagger stocks is an adventurous exercise and not everybody’s cup of tea. An investor who is able to identify specific characteristics of a multibagger stock and has strong conviction about the stock has a good chance to generate astronomical returns on investments. Yogesh Supekar finds out which sectors generated maximum multibaggers in the past decade and more while Vinayak Gangule presents the checklist for identifying multibaggers.

- Vinayak Gangule

Investors are always hunting for multibaggers irrespective of the market conditions. It is futile to look at companies from benchmark indices (Sensex, Nifty) while hunting for multibaggers. One needs to look at smaller stocks having high growth potential from broader market indices as they offer lower base and are usually operating in high growth sectors.

It is common to see large number of stocks getting the ‘multibaggers’ tag in a bullish market environment. But chances of identifying stocks that can multiply money gets reduced drastically in a challenging market environment. .

If investors keep an investment horizon of atleast a decade and more then tough market conditions such these days, wherein broader markets are underperforming, are best time to hunt for multibaggers. In simple terms, more multibagger opportunities can be found in the down market than in normal market condition .

The below table highlights number of stocks that generated more than 100 per cent returns with in a year in the past 10 years.

The above table shows that the number of stocks more than doubling increased sharply after a poor market condition in 2011 and again in 2013. It happened in even in 2017 after two flattish years of 2015 and 2016.

Year 2018 and 2019 have been an exception and tough for broader markets. Several stocks are down by more than 50 per cent from their respective 52-week highs. In the small cap space, almost 125 stocks were down by more than 50 per cent in 2018. In 2019 by October end we have 109 stocks in the small cap space that are trading below 50 per cent from their respective 52 week highs.

A closer look at the small cap stocks performance in 2011 and 2013 makes this observation even more clear.