India has the highest proportion of multibagger stocks among the 10 major global markets including the US, China, Brazil and Japan over the last two decades.
About 54% or 269 stocks within the NSE 500 universe generated over 10x returns, within a 5-year rolling period since 2000. Nearly 40% of the BSE 200 stocks gave greater than 20% annualised returns over the past two decades, 2x the ratio for EMs, suggesting ample alpha opportunities.
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The 1,500 stocks took 52 months on an average to reach the 10x threshold, achieving a total return of 16x when they hit the peak price levels during their respective 5-year (or shorter) outperformance window. In India’s case, it took 54 months on average and the stocks delivered 24x median returns, 1.5x the median across the 10 markets and second highest after Australia, which delivered slightly higher 25x median returns.
Size, promoter holding, growth, and valuations were the key factors that played a role in identifying Indian multibaggers.
Multibagger stocks have exhibited high revenue and earnings growth. About 60% of the multibaggers in India managed to generate at least 20% revenue growth and at least 30% profit growth during their outperformance periods. The median sales CAGR was 25%, while the median profit CAGR was 37%. “This reinforces the core investing principle that earnings growth is the fundamental driver of long-term equity returns. Moreover, 80% of the multibaggers have seen a margin increase during their outperformance periods, likely reflecting high efficiency of the businesses and high pricing power,” the Goldman Sachs study said.
Multibagger stocks are efficient capital allocators and exhibit high return ratios. A majority of the multibaggers generated ROE (return on equity) and cash return on invested capital in excess of 15% during their outperformance periods. About three-fourths of the multibagger stocks had increasing ROEs.
About half of the multibaggers in India had an initial market cap of less than $50 million. About 70% of the multibaggers belonged to the bottom 250 of the NSE 500 constituents in their initial year and only 12% belonged in top 100 NSE 500 constituents, suggesting multibaggers historically have been dominated by small and midcap stocks.
Sectorally, domestic investment and consumer cyclicals have produced the largest number of multibaggers (54%). Specifically, cement, chemicals, capital goods, consumer durables and retail have seen the largest number of multibaggers.
About 70% of the stocks either traded at less than 1x LTM (Last Twelve Months) P/B ratio or below 10x NTM (Next Twelve Months P/E before they eventually became multibaggers. About 60% of the multibaggers took off during market crisis periods of 2001-2002 (dot com crisis), 2008-09 (global financial crisis), 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 multibaggers,” said Goldman.
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On average within the multibagger companies, promoters held a majority equity stake (58%), while institutional investors had a relatively smaller ownership of 23% at the start of the multibagger period. In terms of the distribution, about 60% of the multibaggers had promoters as the majority shareholders (greater than 50% holding) at the start (before the stocks took off).
The 269 multibagger stocks in India have seen a median drawdown of about 31%, in line with the overall median for the 1,500 global stocks. Only 12% of the multibaggers had maximum drawdowns of greater than 50%, suggesting the left tail risks have historically been small.
The stable macro and improving micro environment creates a runway for strong medium-term growth for India, said the brokerage. As such, investors should focus on industries and pockets of the market that offer strong growth opportunities over the medium-term.
“We think Indian equities could be a major source of potential alpha generation in the years to come for investors, given the market’s strong historical track record and the runway for strong growth ahead. At the sector level, we continue to favour domestic cyclicals over global cyclicals in India and remain overweight banks and investment cyclicals (industrials, cement). We continue to like themes of Quality at Reasonable Price (QARP), capex recovery and Make-in-India,” said Goldman Sachs.