More than half (54 per cent) of the NSE 500 (269 stocks) have generated 10-bagger returns over the past two decades, said Goldman Sachs in a report. According to the investment advisory firm, this is the largest proportion of multi-baggers among the 10 markets (vs 30 per cent/20 per cent averages for EM/DM).

Besides, nearly 40 per cent of the BSE 200 stocks have generated over 20 per cent annualised returns over the past two decades — twice the ratio for EM — suggesting ample alpha opportunities, it added.

The global investment advisory firm said that it had analysed 10 major markets across EM/DM, covering 6,700 stocks and examined “10-baggers” — stocks that have generated at least 10x total returns within a rolling five-year period over the past two decades.

Top performers

Westlife Foodworld, MMTC, Praj Industries, JM Financial, Patanjali Foods, Phoenix Mills, Capri Global Capital, KEI Industries, Delta Corp and Balkrishna Industries have generated returns more than 240x within five-year rolling periods over the past 20 years, its study revealed.

In India, the domestic macro environment appears stable given peak inflation/rates and manageable current account. Activity has been improving and the recent quarterly earnings have been better than expected, supporting our mid-teen earnings growth expectations over the next two years.

“We think resilient macro and improving micro environment is conducive for strong medium-term growth and recommend investors to build exposure in India, focusing on pockets of the markets that offer strong future growth prospects,” it said.

Our Large-cap Compounders basket consists of 25 stocks that offer expected 17 per cent sales growth and 26 per cent earnings growth over 2023-2025 (three-year CAGR), at 22x 2024 P/E. Among the 25 stocks that are part of GS India Large-cap Compounders basket are Paytm, Zomato, Adani Ports, Page Industries, Samvardhan Motherson, PI Industries, besides tradional stocks such as HDFC Bank, ICICI Bank, SBI, Bharti Airtel, Bajaj Finance, M&M, L&T, TVS Motor, Titan, UltraTech Cement and Apollo Hospitals.

Mid-cap Multi-baggers comprises 35 stocks that satisfy at least four out of the six multi-bagger criteria, generate 18 per cent ROE and offer 20 per cent/38 per cent 23-25 Sales/EPS CAGR, it said. Among the 35 stocks in GS India Mid-cap multi-baggers basket were Concor, AB Capital, Gujarat Fluorochem, Honeywell Automation, Solar Industries, Oberoi Realty, Jubilant FoodWorks and Sona BLW Precision. Recently-listed stocks such as Nykaa, Vedant Fashions, Metro Brands and Devyani International are also part of its multi-bagger list.

India’s aggregate equity market capitalisation has risen 12-fold since 2003. The average market capitalisation to GDP ratio has increased 11 percentage points, from 76 per cent in the previous decade (2003-2012) to 87 per cent in the recent decade (2013-22), suggesting ongoing capital market development. The realised long-term equity returns at the headline index level have also been compelling, it said.

In addition to a strong track-record of delivering long-term beta via a simple buy-and-hold index strategy, the equity market in India has offered outsized stock returns and alpha opportunities for EM investors. Over the past two decades, about 60 per cent of the current BSE 200 stocks would have outperformed the benchmark.

Starting valuations

“About 70 per cent of the stocks in our universe either traded at less than 1x LTM (last twelve months) P/B ratio or below 10x NTM (next 12 months) P/E before they eventually became multi-baggers.”

The “low starting valuation” of multi-baggers, however, seems to be correlated to prevailing broad market valuations. About 60 per cent of the multi-baggers took off during market crisis periods of 2001-2002 (dot com crisis), 2008-09 (GFC), 2013 (taper tantrum concerns) and 2020 (Covid-19 shock). This suggests that external crises/shocks or low prevailing market valuations have offered good entry points historically for picking multi-baggers. This also partly explains why the previous decade (2002-12) produced more multi-baggers than the recent decade (2013-22).