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Market Watch | Backing the right horse

Smart investors make a lot of money by choosing the right stocks. Somewhat more passive investors also make a lot of money by simply betting on the right promoters, writes Udayan Mukherjee.

india Updated: Dec 18, 2007 21:03 IST

Smart investors make a lot of money by choosing the right stocks. Somewhat more passive investors also make a lot of money by simply betting on the right promoters. While it may seem facile to say that stocks belonging to a particular promoter group would create wealth, a very large number of investors actually end up doing just that. No better example than Reliance over the years. I doubt if even a fraction of RIL shareholders understand the complexities of the oil/petrochem business; buying Reliance for many investors is an article of faith. It may not seem intelligent but it has worked. As they say, whatever works for you in the market is good.

The newfound aggression of Indian promoter groups makes it even more interesting to try and pick the right wealth creators. The next Sunil Mittal, for example. Among first generation entrepreneurs, Anil Agarwal of Sterlite shines out. Starting off as a scrap trader, he is now the king-in-waiting for the Indian metals space. What Agarwal has done from scratch and what the Birlas have made of their decade-old headstart in the metal business is a picture in contrast. It is hunger that matters, not pedigree. Now, he is gunning for International Financing Corporation of India and will probably get it too, marking an entry into the financial services space. Anyone betting on Anil Agarwal would have made money and is likely to make more, going ahead.

There are many such examples. Uday Kotak in financial services, Vijay Mallya in consumer plays, G.M. Rao of the GMR group are examples that come to mind.

Some have blazing track records which make it easy for investors to back them, others exhibit hunger and aggression and such promoters should be backed in bull markets, which are generally kind to ambitious dreamers.

What is equally important is to spot promoters who are trying to reinvent themselves. Their track records may not be spotless, but the magic of market cap and the promise of a sustained business upcycle are powerful reformers. The $2-billion commitment made by the promoters of Essar Oil made me sit up and take notice. Is the Essar group finally ready to play on the big stage? Possible. The Gaurs of Jaiprakash seem to have made giant strides in the infrastructure space. From an unexciting consumer durables business, Venugopal Dhoot has made a big leap into the energy business. The Jindal and Punj families also seem to be making waves in their chosen areas. In contrast, the big guns of yesteryear: the Munjals, Modis, Wadias, Bajajs and Thapars seem to be struggling to keep pace. One look at the market caps of the new stars versus the old ones will tell you the story. So put your money on the right man, it works.

Executive Editor, CNBC-TV18