India has the highest proportion of "multibagger" stocks among the 10 major markets in the world, according to Goldman Sachs.
The NSE 500 has 269 stocks that generated more than 10 times returns over the last two decades, making up 54% of the index, an analysis by Goldman showed.
The analysis is based on 6,700 stocks across 10 markets: India, Korea, Brazil, South Africa, China, and Taiwan among emerging markets; and the U.S., Japan, Europe, and Australia among developed markets. Of this, 1,500 stocks, or 23%, generated at least 10 times returns within a five-year rolling period since 2000.
Indian stocks took 54 months to reach their peak, against the median value of 52 months for the analysed markets. However, Indian stocks gave 24 times returns, 1.5 times the median value across covered markets. This was second only to Australia, which saw 25 times more returns.
Six Common Traits Of India Multibaggers
The 269 that generated over tenfold returns from the Nifty 500 showed six common traits, according to Goldman Sachs. These include robust financials, a high return ratio, a smaller market cap, and high promoter risk.
Around 60% of these generated at least 20% revenue growth and at least 30% profit growth during their outperformance periods, the report said, underscoring the significance of earnings growth for long-term equity growth. Around 80% saw margins widen, reflecting high efficiency and high pricing power.
Multibaggers have also been efficient capital allocators, with most of them posting returns on equity and cash returns on invested capital over 15% during their outperformance periods, Goldman said.
Small market caps and initial shares in the profit pool are other common traits that Indian wealth creators showed, the Goldman Sachs report said, with 148 stocks with a market cap less than $50 million. This implies larger headroom for growth and a favourable low base effect for stock returns, it said.
Around 70% of the outperforming stocks had lower valuations before they became "multibaggers", the report said. Lower valuations and crises provided attractive entry points, according to Goldman Sachs.
More than half of India's multibaggers have come from domestic cyclical sectors, Goldman Sachs said, specifically cement, chemicals, capital goods, consumer durables, and retail.
Promoters held a majority equity stake in such companies, while institutional investors had a relatively smaller ownership of 23% at the start of the period. About 60% of the multibaggers had promoters as the majority shareholders before the outperformance began.
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