India’s high valuations are justified, says Goldman Sachs citing rise of multibaggers and these other reasons
- A report by
Goldman Sachshas highlighted why the Indian market can justify its present high valuations Indiahas delivered the highest number of multibaggers over the last five years, finds the report.
- The report also highlights the importance of
RBImanaging to curtail the inflation print in the last few months.
AdvertisementFor long, pundits have argued that Indian stocks are too pricey. However, there's a reason why India commands a premium in today’s time compared to the pack of emerging markets and even the BRICS economies. Over the last two decades, India’s economic growth has grown sevenfold and the BSE 200 has delivered annualised returns of 16% in rupee and 13% in dollar terms over this period. In comparison, other MSCI EM Index has delivered a modest 7% annualised returns. These returns are representative of the index heavyweights, but if one dives a little deeper, one finds 40% of BSE 200 stocks have delivered returns of more than 20% annualised returns over the last two decades.
Yes, India is not a cheap market, but there’s a reason behind it. An exhaustive study done by Goldman Sachs shows that India has delivered the highest number of multibaggers over the last five years. In its report titled ‘Investing in India’s medium term growth story: Identifying potential multibaggers,’ Goldman Sachs says: “In India, more than half (54%) of the NSE 500 (269 stocks) generated 10-bagger returns, the largest proportion of multibaggers among the 10 markets (versus 30%/20% averages for Emerging market/developed market).
The report notes that the 269 multibagger stocks all share a number of the following traits:
- High realized growth rates
- High capital return ratios
- Mid/small-cap bias
- Inexpensive starting valuations
- Domestic sector orientation
- High promoter holding.
The investment thesis of GS is based on India’s higher growth potential and its ability to generate even higher returns from equities compared to other emerging and developed markets. India’s GDP has grown from $0.5 trillion in 2002 to $3.4 trillion at present. Despite the cyclical slowdown seen in the years prior to the Covid pandemic, nominal GDP has grown at 10% CAGR over the past two decades. Economists at Goldman Sachs expect India’s real GDP to grow at a CAGR of 6.7% in the next ten years against the 6.4% it grew between 2002 and 2022. GS expects India to become a $5 trillion economy by 2026.
During these two decades, India’s aggregate market capitalisation has grown by 12-fold since 2003. India’s average market capitalisation to GDP ratio has increased from 76% (2003-13) to 87% over 2013-23.
According to Goldman Sachs, “The realised long-term equity returns at the headline index level have also been compelling. Over the past two decades,
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