According to a Bloomberg report, India has produced more 10-baggers than the other global markets during the past twenty years. 10-baggers are those stocks whose prices rise 10 times over a decade. For example, if an investor would have invested ₹ 1 lakh in these shares, the value of their holdings would have become more than ₹ 10 lakhs!
In comparison with other markets
As per the report, 20% of NSE 500 index stocks rose more than 900% in the past decade, as compared to 7% for the S&P 500 and 3% for China. Strong growth and multiple reratings were the key drivers of the raise in the share price of Indian stocks. In fact, India also saw the highest share of 10 baggers followed by Indonesia and Brazil, during the previous decade from 2001-2011.
Over the decade ending in 2021, one-fifth of NSE 500 index constituents (80 stocks) at the start of the period rose more than 900% by the end of it. In comparison, Nasdaq Composite saw 10% of its stocks deliver returns of more than 900% while for the S&P 500, the share was 7%. Even though China saw faster economic growth, only 3% of mainland Chinese stocks gave 10-bagger returns.
Reason for growth
Of the 80 stocks from the NSE 500 that gave 10x returns, nearly 90% of them grew their toplines at a CAGR of more than 10% and 70% of them posted profit CAGRs of over 20%. CAGR stands for compounded annual growth rate.
Another characteristic was valuation. The median price-to-earnings ratio expanded nearly 3x from 11x to 31x. The analysts at Bloomberg noted that the results were similar from 2001-2011.
More than 50% of the stocks were from infotech, chemicals and consumer discretionary sectors. A global rise in software spending helped tech stocks and an increase in India’s per capita income aided discretionary spending.
What lies ahead?
India’s economic overhaul is progressing, despite pandemic-fueled disruptions. This underscores the analysts’ belief that the Sensex could double over the next three years. A compounded annual corporate profit growth of 25% is expected which could lead to a relative outperformance of about 16% vs the emerging-market index which is modelled to gain 9% a year.
Factors like “China Plus One” could potentially lead to a $ 1 billion manufacturing opportunity, suggesting a path to structural growth. In addition, India’s corporate earnings have rebounded strongly, led by pandemic effects, rising software exports, higher commodity prices and a clean-up of banks’ balance sheets, and this resilience should continue to
provide an equity-market catalyst. Financials have recovered from corporate loan stress and rising rates are likely to boost banks’ earnings further.
Written by Simran Bafna
