What makes some Indian stocks return 100 times? ‘Diamonds in the Dust’ lets you peek into the unknown. Your discovery tour to the hidden gems!

Indian equity markets is a paradox of its own kind. On one hand, there are more than 6,000 listed companies, yet finding the gems in the vast desert is like looking for needles in the haystack. After devouring Saurabh Mukherjea’s “Diamonds in the Dust” for weeks, I’ve realized that it is so much more than just an investment book-it is masterly exposition on business excellence and sustainable wealth creation.

Finding Diamonds in the Dust

Indian markets have so much truthful magic in their stories-it resembles anything close to a mythical existence. Pidilite Industries moved me; after an investment in 1995 of just ₹10 lakh, today it stands at an astonishing ₹20 crores. Similarly, the investor who invested his faith in Bajaj Finance in 2010 with ₹1 lakh saw his investment multiplying to ₹1.8 crores by 2023. Perhaps the most interesting is the story of Symphony Limited, which took a mere ₹10,000 in 2005 and multiplied it to ₹30 lakhs by 2020.

What makes these returns even more remarkable is their source. These weren’t cutting-edge technology firms or breakthrough pharmaceutical companies. They sold everyday products—adhesives, consumer loans, and air coolers. This perfectly brings “Diamonds in the Dust” central thesis to light: extraordinary returns often arise from ordinary businesses run with extraordinary precision.

Decoding Business Excellence: Beyond the Numbers

But at any rate, Mukherjea’s comments on corporate accounting practices offer an enthralling window into quality business. Consider Marico. Its financial management read like a textbook on the best in corporate governance-their relationships with auditors exceeded three decades, their work capital cycles less than 30 days, and always receivables that grows abreast with revenue. It could not be any more contrasted with the now-bankrupt infrastructure firm that had flashed every possible red flag in the books-a maze of over 100 subsidiaries, a door revolving of auditors, and working capital cycles over 200 days.

It’s just as instructive from the point of view of capital allocation decisions. Asian Paints emerges as masterclass in focused growth. They have invested ₹7,000 crores over the past decade in capacity expansion while modernizing their plants. This has resulted in saving 85% of man-days in terms of minimal human intervention and a highly impressive Return on Capital Employed above 25%. Above all, this has not deviated from their focus on the core business activity.

Building Moats in the Indian Context

“Diamonds in the Dust” has some good case studies of competitive advantage in India, and what makes this unique is how the author attempts to apply a general model to competitive advantage to an Indian business environment. It is through the operational excellence that Avenue Supermart’s, which is more commonly known as D-Mart, has been able to almost create a distribution moat that can’t be touched by the majority. While Titan Company showcases the power of a brand moat in India, and through their Tata association built trust, it mastered regional customization.

The Indian Business Ecosystem: A Unique Playing Field

Indian business entities operate promoter-driven and make their investment decisions more complicated than this. HDFC Bank has succession planning started an entire decade ahead, but such is the professionalism exhibited. Kotak Bank very prudently reduces stakes by promoters without the impact of any loss in market confidence that also mirrors similar levels of excellence. Companies such as these present a contrast when there are companies whose pledging of promoter holdings and obfuscatory related party transactions flag issues at multiple points.

Navigating the Regulatory Environment

Successful companies have well-developed sophisticated adaptation strategies in the complex Indian regulatory environment. TCS and Infosys are good examples, as they have constructed a robust compliance framework in place, rather than something that is a checkbox exercise. Their approach to the openness of government contract bids, as well as well-structured whistleblower policies, show that regulatory compliance can become an advantage.

Modern Applications of Timeless Principles

In the present-day market scenario, the rules of finding “Diamonds in the Dust” are all the more apt. Understanding how the existing moats are getting created in India’s transforming digital economy becomes more pertinent today. With platform economics and data monetization gaining space, there are newer dimensions into competitive advantage analysis. On the other hand, business quality principles in the fundamentals like clean accounting, efficient allocation of capital, and high-quality moats are very much intact.

Quality Investing in the Future

As India zooms forward to become a $5 trillion economy, the landscape of quality investing is constantly in evolution. With the economy formalizing, increasing financialization of savings, and the revival of manufacturing, new hunting grounds are opened for quality businesses. Mukherjea’s frameworks “Diamonds in the dust”, however, are eternal tools that can identify winners for tomorrow.

Conclusion: The Eternal Pursuit of Quality

“Diamonds in the Dust” ultimately teaches us that sustainable wealth creation isn’t about chasing the next hot stock or sector. It’s about developing the wisdom to identify businesses that can compound value consistently over decades. In the daily noise of markets, this message serves as a vital compass for serious investors.

Next time you evaluate an investment opportunity, remember true diamonds aren’t found in the glitter of quarterly results or media headlines. They are discovered through patient analysis of business quality, management integrity, and sustainable competitive advantages. As India’s growth story unfolds, these principles will only become more valuable.

“Diamonds in the Dust” is far more enriching than a summary, if you enjoyed this summary, and want to get deeper insights into the Indian Markets, you can buy it from here!

Let me know your thoughts in the comments!

Read Philip. Fisher’s “Common stocks and Uncommon Profits” summary here!