Large-Cap Indian Stocks To Outperform In The Medium Term: Motilal Oswal Report

Large-cap stocks in India are likely to outperform in the medium term, supported by stronger balance sheets and higher institutional ownership, according to a report by Motilal Oswal Financial Services Ltd.

By definition, the top 100 companies listed on stock exchanges by market capitalisation are classified as large-cap companies. 

The combination of rising financialisation, expanding equity ownership and stronger corporate profitability is creating a multi-trillion-dollar opportunity for investors in India, the financial services company said in its Annual Wealth Creation Study (2020-2025) last week.

Long-term wealth will be created by high-quality businesses that can compound for decades, and the key is to select the compounders carefully and avoid the temptation to time the market, the report noted.

The study examines India's evolving wealth creation landscape and presents this year's theme: India - The Multi-Trillion Dollar Opportunity - Compounding Economy, Compounding Stocks, an exploration of how India's economic compounding is set to create exponential opportunities for investors, businesses, and capital allocators.

The study found that wealth creation during 2020-2025 is the highest in the 30-year history of the study, with the top 100 companies adding Rs 148 trillion, driven by the sharp rebound from the COVID-19 lows.

The world is getting wealthier, and so is India, with global financial assets compounding steadily and India's market cap compounding at 17 per cent over the last 20 years. India is now the 4th largest equity market globally.

"There is no absolute upper limit to financial wealth, despite periodic disruptions, global and Indian equity markets continue to expand structural wealth over long cycles," Motilal Oswal said.

India's GDP quadrupled from USD 1 trillion to USD 4 trillion in the last 17 years.

The Motilal Oswal study projects another quadrupling in the next 17 years, driving a Multi-Trillion Dollar (MTD) opportunity across sectors.

According to Motilal Oswal, financials remain the largest wealth-creating sector, followed by industrials, capital markets, technology, and utilities, among others.

Raamdeo Agrawal, Chairman, Motilal Oswal Financial Services, said, “India is entering its most powerful compounding era. As the economy moves from USD 4 trillion toward USD 16 trillion, the combination of rising financialization, expanding equity ownership and stronger corporate profitability is creating a Multi-Trillion-Dollar opportunity for investors. Long-term wealth will be created by high-quality businesses that can compound for decades. The key is to select your compounders carefully and avoid the temptation to time the market.”

The Motilal Oswal 30th Annual Wealth Creation Study (2020-2025) analysed the top 100 Wealth Creators of India Inc. Wealth Created is measured as the change in market capitalization over five years, adjusted for mergers, demergers, buybacks, capital issuance and dividends. 

The Study identified the Biggest, Fastest, Most Consistent and Best All-round Wealth Creators, and highlighted major trends shaping India's equity wealth creation landscape.