Talking about investing power, quite a few of us would have been involved in financial investments (i.e. deposits, mutual funds, shares, or other). We would have read about windfall gains made by investment gurus and conversely also heard/seen the major risks in equity investments. With information technology being my bread and butter, I thought, I should study more on investments in this industry space.
Let’s take a couple of big examples from the Indian IT space: Wipro and Infosys. The market enthusiasts would already know where I am leading this discussion to, and may want to skip the reading. But for the benefit of the general population, let’s understand how these companies fared since their inception for a shareholder.
Case 1: Investing in Wipro
What if you / your father could invest 100 shares of Wipro in the year 1980 and did nothing since then? Wipro was founded in 1941 with 17,000 equity shares and incorporated in 1945. As the base price or face value per share price used to be Rs 100 at that time, so considering the premium of Rs 80, the share price must be Rs 180 approximately. Assuming a minimum purchase of 100 shares (as was the norm in the era), we could expect an investment of about Rs. 18,000 or so. Yes, this was quite some amount for many people in India in the 1980s. But let’s assume, if the investor had the capability, what he / she could have as investment returns now in the year 2013. Is the guess a lakh, or 10 lakhs, or 100 lakhs. Well let’s analyze and read on.
Without considering any dividend payments by the company, and just based on valuation of the shares, here is the valuation chart since 1980:
Initial Investment (1980)
100 shares of Wipro totalling Rs. 18,000 to Rs. 20,000 (in the year 1980).
Share holding calculation from 1980 to current
|Year||Face Value||Action||Ratio||Shares in hand|
|1981||100||Stock Bonus||1 : 1||200|
|1985||100||Stock Bonus||1 : 1||400|
|1986||10||Stock Split||10 : 1||4,000|
|1987||10||Stock Bonus||1 : 1||8,000|
|1989||10||Stock Bonus||1 : 1||16,000|
|1992||10||Stock Bonus||1 : 1||32,000|
|1995||10||Stock Bonus||1 : 1||64,000|
|1997||10||Stock Bonus||2 : 1||192,000|
|1999||2||Stock Split||5 : 1||960,000|
|2004||2||Stock Bonus||2 : 1||2,880,000|
|2005||2||Stock Bonus||1 : 1||5,760,000|
|2010||2||Stock Bonus||2 : 3||9,600,000|
Current Valuation (2013)
So we see, the 100 shares bought in 1980 is now worth a huge 9.6 Million shares in 2013. With Wipro currently trading (Mar 2013) at about Rs. 438 per share, the value of this holding totals a whopping Rs. 4, 204, 800, 000, i.e. an amount of nearly Rs. 4.2 Billion or Rs. 420 crores. This is simply an amazing rate of investment return, at nearly 50% compounded growth per annum.
More importantly, the above figure is without taking into account any accrued dividends, that Wipro has paid through the years. If we consider for example, between the years 2011 to 2013, Wipro has paid the following dividends:
|Announce Date||Dividend Type||Dividend (%)||Dividend/ Share||Net Dividend|
|15/01/2013||Interim||100%||Rs. 2||Rs. 19,200,000|
|25/04/2012||Final||200%||Rs. 4||Rs. 38,400,000|
|10/01/2012||Interim||100%||Rs. 2||Rs. 19,200,000|
|27/04/2011||Final||200%||Rs. 4||Rs. 38,400,000|
|17/01/2011||Interim||100%||Rs. 2||Rs. 19,200,000|
|TOTAL DIVIDEND ACCRUED (2011 to 2013)||Rs. 134,400,000|
(dividends data source: Economic Times)
So, the dividends for 2011-2013 itself comes to about Rs. 134 Million, or about Rs. 1.34 crores. Is it pure luck OR good research OR a professional investing approach? Who did really benefit with this strategy? If one believes this blog information to be true, then there was indeed one such lucky person to have reaped this amazing benefit.
Case 2: Investing in Infosys
I will quickly take another example of Infosys, to just show that Wipro’s case was not just an aberration. This was the year 1993, when Infosys floated a public issue. If you had bought 100 shares of Infosys from its IPO worth Rs 9,500 and held on to them, let’s see what you could retire comfortably today with.
|Year||Face Value||Action||Ratio||Shares in hand|
|1994||10||Stock Bonus||1 : 1||200|
|1997||10||Stock Bonus||1 : 1||400|
|1999||10||Stock Bonus||1 : 1||800|
|2000||5||Stock Split||2 : 1||1,600|
|2004||5||Stock Bonus||3 : 1||6,400|
|2006||5||Stock Bonus||1 : 1||12,800|
So 100 shares of Infosys invested in 1993 is now equivalent to 12,800 shares in 2013. With Infosys currently trading at about Rs. 2,864 per share, the market value as of date for the share holder is a whopping Rs. 36,659,200 (i.e. Rs. 36.7 million OR Rs 3.67 crores). This is a huge rate of return (compounded rate of over 50% p.a.) without taking into account any dividends.
So, the IT industry has been a great place to invest for the past 30 years. More importantly, it lays the importance of the compounding power of well planned long-term investments. Its an overused statement by many, but proper business study and patience are indeed the key attributes for a successful investor.
To replicate an example like above, you probably would need to ask – what are the business themes and trends that will shape our future? Answering this could help decide where you want to remain invested for the next 20 to 30 years and possibly retire as a wealthy person!