India can outrun EMs, developed markets: Goldman Sachs Report

Goldman Sachs recently released a report in which it emphasised the investment opportunity presented by India’s medium-term growth trajectory. Moreover, it identified potential opportunities for sizeable returns. In comparison to other emerging and developed markets, the brokerage firm claimed that Indian equities have the potential to offer higher returns. Positive demographic trends, ongoing reforms, and rising digitalization, which is formalising the economy, all contribute to this potential.

Goldman Sachs examined 6,700 stocks from 10 major markets in emerging and developed economies in great detail to analyse this potential. The analysis’ main goal was to locate “10 baggers.” These stocks have over the past 20 years generated at least 10 times their initial investment over a rolling five-year period.

India stood out among these markets with the highest percentage of multi-bagger stocks. In the NSE 500, which consists of 269 stocks, more than half (54%) saw 10-bagger returns. This was significantly higher than the average for emerging markets, which was 30%, and for developed markets, which was 20%.

The report said, “The 269 multi-bagger 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.”

Indian stock markets have proven to be very profitable, outperforming benchmark indices and providing attractive stock returns for investors in emerging markets (EM). Approximately 60% of the current BSE 200 stocks have outperformed the benchmark index over the past 20 years, highlighting their capacity to produce superior returns. Additionally, nearly 40% of these stocks — which is twice the percentage of such stocks in the larger MSCI EM index — have produced annualized returns above 20%.

The report further added that given India’s long history of outsized alpha, we examine multi-bagger stocks, concentrating on those that have produced at least 10x returns, and analyse their common characteristics in the section that follows.

The stable domestic macro environment in India, with inflation and interest rates reaching their highest levels and a manageable current account, is highlighted by Goldman Sachs. The economy of the nation has seen improvement, and recent quarterly earnings have outperformed expectations, supporting the prediction of earnings growth in the mid-teens over the following two years.

In light of these encouraging developments, the report contends that a stable macro and improving microenvironment fosters a favourable environment for strong medium-term growth. Investors are urged to think about investing in India, with a focus on particular market segments that have a promising outlook for expansion.