Come, look at India’s magnificent 270

  • 05 Jun 2024
  • Read 5 mins read

What exactly is India’s magnificent 270?

By now you must have surely heard of the Magnificent Seven of the US stock markets. It is nothing like the Yul Brynner, Steve McQueen, Charles Bronson western flick of the same name, but about 7 high-performing stocks in the US markets. The recent entrant to that list is NVIDIA, but what is India’s Magnificent 270 all about? 

In a recent report, Goldman Sachs pointed out that over last 20 years; 54% of NSE-500 stocks multiplied 10 times or more. That is like an investment of Rs1 crore becoming Rs10 crore in 20 years. In CAGR terms, it is about 12.3% annualized. If it does not sound flattering, but these are consistent returns over 20 years for 270 broad-based index stocks; or India’s Magnificent 270.

 

Why is this performance so special?

According to the Goldman Sachs report, 54% of a broad-based index giving multi-bagger returns is unprecedented among emerging markets or developed markets. The general average in the best-case scenario is that about 20% to 30% of the stocks in any market give multi-bagger returns. That is what makes the returns on these Magnificent 270 so special. 

The report has also gone a step further to get more granular returns data. Interestingly, nearly 40% of the BSE200 stocks gave CAGR returns of over 20% over the last 20  years, which is again something that is not matched by other markets. Goldman has only focused on minimum 10 baggers and no market produced these kinds of multi-baggers as consistently as Indian markets did.

Which stocks were the stars of last 20 years?

According to the report, stocks like Westlife Food (McDonald’s), Praj Industries, JM Financial, Phoenix Mills, KEI Industries, and Balkrishna Industries have multiplied more than 200 times in this period of 20 years. The story is not just about the micros but also about the macros. For instance, the market cap of the Indian markets has grown 12-fold since 2003. Even a dumb investment in an index fund or a random selection of reasonably well-endowed stocks would have made an investor richer many times over. 

Despite this massive market expansion, the Buffett ratio of market cap to GDP has not gone up appreciably. For instance, if you compare the decade of (2003-2012) with the decade of (2013-2022), the Buffett Ratio (Market Cap / GDP) has gone up from 76% to 87%. It means that the GDP has largely kept pace with the growth in market cap, so investors need not be overly worried about stretched valuations still.

Moral of the story; even a passive strategy would have worked

From the above data, it is apparent that Indian markets have been extremely adept at generating alpha for investors. The question is whether a passive strategy of buying and holding the index over longer periods of time would have really worked. Just look at the Sensex. Over the last 43 years, Sensex generated an average CAGR return of 16%, excluding dividends. According to the Goldman report, nearly 60% of the BSE 200 stocks would have done better than the benchmark. Alpha or beta, both would have worked in India as long as the investor was patient enough to hang on to equities for the long term.

If you are worrying about bad markets and bearish attacks, think again. According to the findings of the report, the low starting valuation of multi-baggers was correlated to broad market valuations. If you look at the multi-baggers of the last few years, more than three-fifth of them took off during one of the major crisis periods. It could have been the dotcom crisis of 2002 or global financial crisis of 2009 or taper tantrum of 2013 or the COVID lows of 2020. To cut a long story short, manic lows offer great entry points for multi-baggers in India.

Content Source: Business Line