Those are the year-end prices of the Maruti share. The chart looks great, doesn’t it?
A ₹ 125 share is now valued at nearly ₹ 7000. Sounds fantastic, but in reality, it was far from easy.
Picking quality stocks is easy, even giving the right allocation isn’t difficult. But staying invested in a company for a long period of time is probably the most difficult part of investing.
Observe the chart (or table) above carefully and think from the point-of-view of an investor, who invested in the company in 2003 or 2004.
Sure, the stock price went up. But to enjoy the massive gains the company has given between 2011 – and 2017, an investor had to see through two periods of massive downfall.
From the end of 2007 to the end of 2008, Maruti crashed by nearly 50%. Nearly all the gains made between 2004 to 2007 were lost in a single year – the great market crash of 2008.
Those who survived 2008 were rewarded in 2009 with 200% gains – but were tested once again in 2010 and 2011 which were extremely painful as the stock crashed by 45% during that period.
If you lost hope in 2011 and sold the shares of Maruti, you would’ve lost all the gains for 6 consecutive years between 2012 – and 2017.
Maruti is testing its long-term investors yet again – as the stock hasn’t performed since 2018. From a high of ₹ 10,000 per share on December 20, 2017, the Maruti share price crashed to ₹ 4001 on April 3rd, 2020.
On that one day in April 2020, all the gains in stock price between 2015 – and 2020 were lost.
Who said long-term investing is easy? It’s painful. It’s difficult. And because it is difficult, it can be extremely rewarding too. There is no gain, without lots of pain in the stock market.
Even though the stock has recovered from its Covid-lows, Maruti is still 30% down from its 2017 highs.
Car sales are down, the economy is struggling due to Coronavirus. People are losing jobs.
During such times, when there is negativity all around. Very few people would be interested in buying Maruti shares. No one knows how many years the share could underperform.
There is also a lot of uncertainty around electric cars and whether Maruti can make the transition. Companies that have been slow to transition have been wiped out – Nokia and Kodak are examples of this.
If the company does well. If the economy grows and Indians go out to buy cars in big numbers once again – Maruti could become a ‘multi-bagger’ even from here.
Here is a stat that could get you interested.
- India – 22 out of 1000 people own cars.
- China – 164 out of 1000 people own cars. Nearly 8 times more than India.
- Canada – 662 people out of 1000 have cars. Far more than India.
- UK – 850 out of 1000.
- United States – 980 out of 1000. Almost every adult has a car.
India has a long way to go. Even if 50 out of 1000 people own cars in India – most of those cars could well be a Maruti.
After all, India trusts the brand, its after-sale service, and also its service centers and dealers are spread across the length and breadth of the country.
At the same time – there could be a shift with people preferring renting an Ola or Uber, instead of buying a car. There could be a competitor who takes away market share (Hyundai for example).
These are the challenges that every long-term investor faces. The future is always uncertain, this makes returns from the stock market uncertain too.
Maruti Share Returns: Compounded and Absolute
How many returns has Maruti Suzuki given if you bought the share 2 years ago? Or 3, 4, or 5 years ago.
What if you were holding Maruti shares from the time of its IPO? What if you bought on a listing day at ₹ 165 per share and managed to hold it through its ups and downs.
Check out the table below.
CAGR is Compounded Annual Returns. Absolute is exactly how many times your investment has grown.
|2 years||-3.52||0.93 times|
|3 years||-10.61%||0.71 times|
|4 years||6.91%||1.31 times|
|5 years||8.50%||1.50 times|
|10 years||17.19%||4.89 times|
|15 years||17.28%||10.9 times|
|Since Listing||24.61%||42.1 times|
|Since IPO||26.66%||55.6 times|
Maruti has compounded at an excellent rate of 26.66% if you were holding the shares from IPO. It has given nearly 25% returns if you bought it on the day it was listed on the stock exchange.
The last 3 years have been poor, but the 10 and 15-year returns are still excellent. And it does not include dividends that the company has been giving to its shareholders.
1 lakh invested in Maruti Suzuki
Suppose you invested 1 lakh rupees in Maruti, how much would it be over different time periods?
The answer is in the table below:
|Time Period||1 Lakh Invested|
|2 years||₹ 93,089|
|3 years||₹ 71,429|
|4 years||₹ 1,30,639|
|5 years||₹ 1,50,368|
|10 years||₹ 4,88,748|
|15 years||₹ 10,92,767|
|Since Listing||₹ 42,12,121|
|Since IPO||₹ 55,60,000|
Maruti Share vs FD Returns
What if you opened a fixed deposit of 1 lakh and made another investment of 1 lakh in Maruti Suzuki Limited.
The results are below. Again, the returns from Maruti does not include dividends.
- Notice the two lines in the graph above. One moves in a straight predictable line, the other is unpredictable.
- If you invested in 2010 in Maruti, for the first 3 years your returns would’ve been lower than FD.
- In fact, during the first two years, you would’ve been at a loss. Many would sell at this point.
- It’s only after the 3rd year that the investment began to grow exponentially.
- At one point in 2017, the absolute returns from Maruti shares were 8 times more than FD.
- Then the stock crashed, but over a period of 10 years, an investment in Maruti would’ve given you significantly higher returns than a fixed deposit.
- Why would anyone invest in FD when stocks can give such excellent returns? The answer is risk and volatility.
- Returns from FD are guaranteed. A middle-class person who receives a salary every month sacrifices his lifestyle to save some money. Imagine the pain he would feel when the value of his investment goes down.
- This is exactly why people prefer the safety and comfort that a fixed deposit provides.
- Over a 10-year period, fixed deposits would’ve given you 7.39% returns (Data calculated from yearly FD interest rates from Reserve Bank of India).
- Maruti did not give any returns for the first 3 years but ended up giving 17.2% returns – which is better than any asset class. Comfortably higher than inflation and better than the returns from Gold, Real Estate, etc. And this does not include income from dividends.
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