Every stock market investor dreams of finding a multibagger, a stock that delivers exceptional returns over time. However, identifying such opportunities among thousands of listed companies is far from easy.
Ramdev Agrawal, one of India’s most respected investors and Chairman of Motilal Oswal Financial Services, is known for spotting winning stocks well before they catch the attention of retail investors. In a recent interview with CNBC-TV18, he explained how he identifies these rare ‘gems’.
Look For Strong Businesses Before They Become Popular
According to Ramdev Agrawal, the key lies in identifying fundamentally strong companies that are still outside the market spotlight. One of the best examples of this approach is Balkrishna Industries.
He recalled that when he invested in the company, its market capitalisation was just Rs 100 crore. The stock was trading at a P/E ratio of only 1, while its return on equity (ROE) stood at an impressive 30-40%. Despite these strong numbers, there were hardly any buyers.
Agrawal met the company’s management, understood their business story, trusted their vision, and invested. Within just two years, the share price rose from Rs 100 to Rs 1,200, delivering extraordinary returns.
Growth Alone Is Not Enough, Price Matters
Ramdev Agrawal strongly warns new investors against buying fast-growing companies at any price. For him, growth must always be accompanied by the right valuation.
He considers the PEG ratio (Price-to-Earnings to Growth) his most important tool. Simply put:
- A PEG ratio of 1 or below suggests the stock is fairly valued for its growth.
- A higher PEG ratio indicates the stock is expensive.
According to Agrawal, buying overpriced shares means giving up a large part of your potential returns at the very beginning.
Why Discipline Matters More Than FOMO
Discipline, Ramdev Agrawal says, is everything in investing, even if it means missing out on opportunities.
He shared a lesson from Asian Paints. He wanted to buy the stock at a specific price. When it was trading at Rs 20, he waited for Rs 15. When he was ready to buy at Rs 20, the price moved to Rs 25. Later, when he decided to enter at Rs 23, a friend advised him to wait for a fall.
The stock never corrected, it went on to touch Rs 90. Agrawal missed the entire multibagger rally but has no regrets. He believes it is better to miss an opportunity than to buy a ‘hot stock’ at an unreasonable price and get stuck.
Why ROE Alone Can Be Misleading
Ramdev Agrawal places great importance on ROE, preferring companies with at least 25% return on equity. However, he cautions that ROE alone does not tell the full story.
He closely examines working capital management, especially how quickly a company collects its dues. As he puts it, “If a company shows 25% ROE but takes 100 to 120 days to collect money, that’s a red flag. Only God knows what they are showing in their balance sheet.”
The clear takeaway: cash flow is king. If a company reports profits but fails to convert sales into cash, investors should stay away.
Understanding The Business Beyond Numbers
To identify true multibaggers, Ramdev Agrawal believes investors must understand the company in depth. He personally meets promoters to gauge their passion, evaluates product strength, and studies the distribution network.
This on-ground understanding helps him determine whether a company’s growth is genuine or merely market hype.
According to Ramdev Agrawal, successful investing is not about tips or shortcuts. It requires patience, discipline, fair valuation, strong cash flows, and a deep understanding of the business. Those who master these principles stand the best chance of finding the next multibagger, before the rest of the market does.