As a hub of multibagger stocks, India can outrun EMs, developed markets: Goldman Sachs

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In its recent report, Goldman Sachs has highlighted the investment opportunity thrown up by India's medium-term growth trajectory and identified potential opportunities for significant returns.

The brokerage firm said Indian equities have the potential to deliver higher returns compared to other emerging and developed markets. This potential is supported by favorable demographics, ongoing reforms, and increasing digitalisation that is formalising the economy.

To analyse this potential, Goldman Sachs conducted an extensive examination of 6,700 stocks across 10 major markets in emerging and developed economies. The focus of the analysis was to identify '10-baggers'. These are stocks that have generated at least 10 times their initial investment within a rolling five-year period over the past two decades.

Among these markets, India stood out with the highest proportion of multibagger stocks. More than half (54 percent) of the NSE 500, consisting of 269 stocks, achieved 10-bagger returns. This was significantly higher than the average of 30 percent for emerging markets and 20 percent for developed markets.

"The 269 multibagger stocks all share a number of the following traits: (1) high realised growth rates; (2) high capital return ratios; (3) mid/small-cap bias; (4) inexpensive starting valuations; (5) domestic sector orientation; and (6) high promoter holding," the report said.

The Indian markets have proven to be highly lucrative, surpassing benchmark indices and offering attractive stock returns for emerging market (EM) investors. Over the past two decades, approximately 60 percent of the current BSE 200 stocks have outperformed the benchmark index, demonstrating their ability to generate superior returns. Moreover, nearly 40 percent of these stocks have achieved annualized returns exceeding 20 percent, which is twice the proportion of such stocks in the broader MSCI EM index.

"With India's strong historical track record of outsized alpha, we delve into multibagger stocks, specifically focusing on stocks that have delivered at least 10x returns and study their common traits in the subsequent section," added the Goldman report.

Goldman Sachs highlights the stable domestic macro environment in India, with inflation and interest rates reaching their peak and a manageable current account. The country has witnessed improved economic activity, and recent quarterly earnings have surpassed expectations, supporting the projection of mid-teen earnings growth over the next two years.

Considering these positive factors, the report suggests that the resilient macro and improving micro environment create a favorable climate for robust medium-term growth. Investors are advised to consider investing in India, with a focus on specific areas of the market that offer strong potential for future growth.