Raamdeo Agrawal bets on digital companies becoming biggest wealth creators in 10 years

Market veteran Raamdeo Agrawal, who is known for his annual wealth creation studies, believes that digital companies would feature among the biggest wealth creators in the next 10 years.

Agrawal, who has been authoring the annual wealth creation report for the last 26 years, says that while the traditional companies still feature among the biggest, fastest and even the most consistent wealth creators, the next five to 10 years would see new-age companies replacing the much-older ones.

“When we look at the biggest wealth creators for the five-year period between 2022 and 2027, more than half could be digital. In the 10-year period from 2022 to 2032, it could be as many as eight digital ones with just a couple of traditional firms,” says Agrawal.

This assumes significance as the recent past has seen digital firms like Policybazaar, Zomato, Nykaa and Paytm making their stock market debut and registering a mixed trend in terms of stock price movement.

Many in the market are sceptical about investing in such companies as they have no profits – Nykaa being an exception – to show and are burning cash to generate business volume.

Agrawal, however, believes that the theme for 2022 would be ‘Atoms to Bits’ while referring to the digital businesses and how value would migrate from companies that are mostly physical in nature to entities that are digital.

But not every digital firm would succeed, he says.

“There are six key success factors. Large opportunity size, product-market fit, wide distribution, network effects, favourable unit economics and operational scalability,” he says.

Referring to the huge losses of digital entities, he says online majors use human capital to self-generate intangible assets like a technology platform, which gets fully charged to the income statement, resulting in an optical loss.  

RIL, TCS, HDFC Bank biggest wealth creators

Meanwhile, in the latest edition of the wealth creation study, RIL, TCS and HDFC Bank have emerged as the biggest wealth creators in the five-year period from 2016 to 2021.

As per the study, RIL created wealth amounting to Rs 9,661 billion in the five-year period, followed by TCS and HDFC Bank with a wealth creation of Rs 7,294 billion and Rs 5,182 billion, respectively.

The top 10 wealth creators between 2016 and 2021 were traditional majors like Reliance Industries, TCS, HDFC Bank, Hindustan Unilever, Infosys, Bajaj Finance, ICICI Bank, HDFC, Kotak Mahindra Bank and HCL Technologies,

Further, the five-year period from 2016 to 2021 saw a total of Rs 71 lakh crore of wealth being created – the highest ever five-year quantum since the inaugural edition of the study 26 years ago.

Interestingly, an amount of Rs 10 lakh invested equally in 2016 among the top 10 fastest wealth creators would have grown to Rs 1.7 crore in 2021 – a CAGR of 77 per cent versus a mere 14 per cent for the Sensex.