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Learning From The History Of India’s Past Multi-Bagger Stocks

Many investors are enjoying heady gains but it would be a mistake to think that this will happen endlessly, writes CK Narayan.

<div class="paragraphs"><p>A trader monitors his computer screen at a securities brokerage. (Photographer: Dimas Ardian/Bloomberg)</p></div>
A trader monitors his computer screen at a securities brokerage. (Photographer: Dimas Ardian/Bloomberg)

Over the past many years, the investing public has become quite enamoured of stocks that have made humongous gains. The word ‘humongous’ is apt because the gains that stocks have clocked in this decade have dwarfed gains made in prior decades.

However, it is not as though the multi-bagger concept is of a more recent vintage. Certainly, there is more talk of it now and there is even an active pursuit of it in current times. But the good ole' days also had their share, only that we were all taken by surprise when big price moves happened. These days, we just shrug and ask... how much more? Is that attitude good or can that lead to problems? Let me take you down the pages of multi-bagger history.

In The 1970s...

My first brush with a multi-bagger was when I was allotted shares of Colgate Palmolive way back, in what I think was 1978. The stock was issued at a price of Rs 25 and got listed at Rs 100. We gasped at the incredible gains that everyone made and there was a rush to take profits. Just to add some perspective, at that time my portfolio had ITC at Rs 18, Hindustan Lever at Rs 19, Bata at Rs 36, GE Shipping at Rs 18, etc. So you can imagine the headiness when Colgate listed at 100.

Then, Colgate did something that had never been done earlier: it declared a 100% dividend... and followed that up with a 1:1 bonus... and then creamed it further with another 100% dividend on expanded capital!

For people who were used to measly handouts from companies these returns came as a huge surprise. Here is the chart of Colgate from those times until now.

Learning From The History Of India’s Past Multi-Bagger Stocks

The price you are seeing right now is some five bonuses later. So the Rs 100 listing price that I spoke about was equal to some 3-4 bucks. But note here that after being a fantastic performer for a while, Colgate's share prices dropped some 80%. Note that this happened to one of the bluest chips of its time – with decadal market share over 55%, continuous high dividends and bonuses.

Naturally, people were enthused by the prospects of these MNC stocks and there was a clamour to buy them. Stocks like Ingersoll Rand, Merck, SKF, Ponds, Lipton, etc. became the first of the ‘multi baggers’. Their share prices, however, rose only to a few hundred a share but that was in an era when stock prices were largely not above Rs 50/share.

Here is a chart of Ponds, one of the big multi-baggers of the Foreign Exchange Regulation Act dilution era. It was eventually merged into Hindustan Lever, now known as Hindustan Unilever. You can see what a colossal wealth builder Ponds was in those decades.

Learning From The History Of India’s Past Multi-Bagger Stocks

The Decade Before Liberalisation

In the 1980s, stocks trading at four digit prices were just a handful. This was the time when a clutch of South India-based companies were ‘discovered’ by the Bombay-dominated pool of investors, led by the Enam folks, among others, who accumulated them in loads. Stocks like Lakshmi Machine, MRF, Engine Valves, Raju Surgicals, etc. were among those whose prices soared above Rs 1,000/share levels probably for the first time in the Indian market history. The float was low for many of these and the buyers benefitted from a general lack of information, lack of access but enough resources. All these factors combined sent these companies' shares to very high levels, relatively speaking. They became the next set of multi-baggers for us in the 1980s.

I recall reading the balance sheet of Madras Cement and wondering why a stock with Rs 280 EPS was trading at Rs 270/share in the market? It didn’t immediately make sense to me but it did to the folks from Enam and they loaded the truck with it, and the stock zoomed ten-fold.

The Harshad Mehta Storm And Its Aftermath

In the early 1990s, Harshad Mehta happened and that single event changed India’s stock markets forever. It catapulted stocks like ACC and a few others into five digit prices, leaving many of us mind-boggled. While the recent hit series The Scam profiled Harshad, the show didn’t really dwell too much on the stocks. ACC, as many of you may know, was the biggest vehicle he rode (other than the flashy florescent yellow sports car that he used to drive around in and all of us on Dalal Street would huddle around it to admire and ogle) but there was also Apollo Tyres (briefly shown in the series with a different name), Castrol, ITC, and of course, Mazda Leasing.

ACC went from Rs 125/share to Rs 12,500/share (Rs 100 paid up) and then collapsed to Rs 400. I did not subscribe to the rights issue of ACC (issued at Rs 128) in 1988 because the stock was trading below the rights issue price.

Here is a personal story on Mazda. Like many others, I too had bought into Mazda around some Rs 200-levels. In those days there was the concept of ‘odd-lots’ - they always quoted at a discount. Any stock that was not in the prescribed lot size of the exchange was considered an odd-lot. There were plenty of odd lots floating around in Mazda because of some rights or debenture conversions. Clients of mine would sell these odd-lots and I picked up a lot of them at good discounts. The practice was to club odd-lots together to create a market lot and then sell it – a neat arbitrage. There was work involved of course and it took time too for all this to happen but that was the risk one took. It just so happened that Harshad made Mazda his main vehicle and the stock soared. It soared higher and higher and higher leaving us breathless at the rarefied atmosphere it was trading in.

I was about to encash one of the biggest gains of my life when I ran into an associate of Harshad at a friend’s place. And he said to me, “don’t you want to change your house location? Look where Harshadbhai has gone to, with Mazda you can move to Malabar Hill.”

That was when Mazda became Malabar Hill, i.e. it stopped being a stock and became a house of dreams.

Here is the meteoric rise and fall of Mazda (Rs 10 to Rs 1,000 and back).

Learning From The History Of India’s Past Multi-Bagger Stocks

Then, in the mid-1990s, multinational pharma and FMCG stocks made big runs that took them to what were relatively very high prices. Remember that until around 1993-94 we were still faced with a glut of fly-by-night public issues inundating the markets. Our attention was distributed over hundreds of these IPO stocks that were really worthless.

The rules were rather lax back then and often an IPO was actually legalised looting by unscrupulous promoters. MNC pharma and FMCG stocks, therefore, stood out like beacons and became aspirational stocks.

Once stocks reach that stage, their prices never fall.

Another great story that emerged in the mid-1990s was Orkay. Most people have probably never heard of this stock but at that time Kapal Mehra, the owner of Orkay Silk Mills was said to be a challenger to the great Dhirubhai Ambani of Reliance. At that time, Reliance was still a textile-dominated company (brand name Vimal) and not the petro-giant it became later. Stories later came out that the great doyen was behind the downfall of Orkay. But the frenzy in Orkay trading was unbelievable. I recall personally trading thousands of shares at the kerb on the day the quarterly results of Orkay were to be released.

The stock went from some Rs 15/share levels to beyond Rs 350 before disappearing a couple of years later. Here is the journey of Orkay, from market darling to a pariah. The rates you see on the chart are adjusted for rights issues.

Learning From The History Of India’s Past Multi-Bagger Stocks

Y2K And The Tech Boom

Then came the great technology and software boom of 1999-2001 which simply reset the meter on how high stock prices could go. There was a trading frenzy over DSQ Software, Pentafour Software, Digital Equipment, Silverline Technology, etc. that all climbed to dizzy heights. I doubt there was any investor at that time who didn’t have one or more of these multi-baggers in hand.

This was a time of more multi-baggers, I think, than at any other time in the history of the markets.

We were all dizzy again because Harshad had been replaced by Ketan Parekh and companies such as Global Tele (Rs 65 to Rs 3,500 and back to Re 1) and Himachal Futuristic (Rs 15 to Rs 2,500 and back to Rs 7) were the ingredients of this new heady brew.

Here is the chart of Pentamedia, another of Ketan’s vehicles. I had the good fortune of trading this one right into the top and exiting there. Pure luck, that exit. No skill.

Learning From The History Of India’s Past Multi-Bagger Stocks

Among that technology pack, later of course, who can forget the great debacle of Satyam Computers? It was one that could do no wrong. But once the tide turns, nothing can stand in its way.

Learning From The History Of India’s Past Multi-Bagger Stocks

Steady Rise In The 21st Century

The markets started expanding once again after 2002-2003 and the next set of multi-baggers, with more consistent, fundamental factors-based and quieter moves, were unveiled through the decade of the 2000s. That trend is still seen continuing. Of course, even now there may be stocks being pushed up through machinations, no doubt, but these are much fewer in number than earlier. This is mainly owing to more effective regulation, less information asymmetry, institutionalisation of the markets, etc.

In this new decade of the 2020s, with a completely new breed of investors in the market, it is beginning to seem to everyone that multi-baggers are the norm rather than an exception.

Suddenly you have stocks like Avenue Supermarts (Rs 600 to Rs 5,000) IRCTC (Rs 320 to Rs 5,500), or IndiaMart (Rs 970 to 9,600) creating big wealth for the current set of investors. These are just three names picked at random but we all know there are scores more. The constant popularisation of their price moves, the eulogies paid to them, the haloed stories of their success have all made them synonymous with success in this market era. But, there are 3,000 actively traded stocks in the market and only a handful of them qualify as big movers. Think of the odds of one getting into those using one's non-existent skills.

Learn From The Past

The idea behind providing this history of multi-baggers is to let the current crop of investors know that stocks come and go but cycles occur forever. So long as the cycle remains up, the prices will climb, sometimes to crazily dizzying levels. We have been there before and we will do so again. It would do best to remember that. To quote George Santayana, “those that won’t learn from history are condemned to repeat it”.

Many investors are enjoying the heady gains that some stocks have brought to their portfolios but it would be a mistake to think that this will go on endlessly or that the sky is the limit.

Sure, some stocks have seen great heights, pulled back, and then have risen again. But history is also replete with stocks that never rose to earlier peaks or worse, simply collapsed. We would be foolish to think that the stocks we hold belong to the former category only.

Markets have a logic of their own for pushing stock prices up. That logic also works on the way down. Did anyone ever imagine that GTL at Rs 3,500/share would quote at Re 1 twenty years later? At that point of time in 2000, if you were asked for a 20-year view on GTL, your answer would probably have been a share price of Rs 1 lakh or 2 lakh for the stock. Look how many zeroes dropped out of that guesswork. If you don’t believe me, take a look at the chart.

Learning From The History Of India’s Past Multi-Bagger Stocks

So while everyone should continue to enjoy the great returns that some of these 'multi-baggers' have brought for us, let us also take a leaf from history to protect the gains that have accrued.

You never know when the next GTL is lurking around the corner.

The lesson to be learnt from this long road down history is that multi-baggers are produced by the times they live in. Each of the stocks that I have cited had a ‘story’ of its own at that point in time. Colgate’s was the FERA dilution (a clear giveaway and dole by the government back in the late 1970s, when a great many fortunes was built on these); ACC’s was the ‘replacement cost theory’ of Harshad Mehta; Mazda was to become the listed version of Growmore (Harshad’s company); DSQ, Pentafour were the Y2k generation; GTL, HFCL were riding the Ketan Parekh gravy train; MNC stocks were once aspirational but growth constraints and adverse policies caught up with the trends, etc.

Each multi-bagger has had some validating story supporting its rise. I recently read an analyst report justifying the price of a big mover on the basis of FY25 financial projections.

When you start discounting prices many years ahead, you know there is trouble ahead. Optimism running amok is often the main reason why stock prices get pushed past sustainable limits.

Are we reaching there with the current crop of multi-baggers? I have no idea. I cannot guess and neither condone nor agree with what is getting baked in. All I know is my history and that tells me to keep protecting my gains on the few that I have been lucky to invest in. I deliberately say 'lucky', because no one should really credit himself with the incredible prescience of recognising that the stock would go up X-fold.

Mutli-baggers are good but remember that they are always a function of the times and the trends. It is we who start believing them to be otherwise. Keep your head about you if you own one.

Note: All the charts provided here are courtesy of my good friend Vivek Patil of ASA. Today ASA is the probably only software that has data going back all the way to the 1980s for all stocks.

CK Narayan is an expert in technical analysis; founder of Growth Avenues, Chartadvise and NeoTrader; and chief investment officer of Plus Delta Portfolios.

The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.