Motilal Oswal Financial Services has identified 29 compounding stocks, as the brokerage sees India shifting to a multi-trillion-dollar (MTD) opportunity over the next 17 years.
“The world is getting wealthier by the day, and so is India. As an economy gets wealthier, the wealth effect kicks in, which further boosts economic growth, which in turn, propels wealth, creating a virtuous cycle of growth and wealth creation,” its 30th Annual Wealth Creation Study (2020–2025) said.
Motilal sees India’s GDP quadrupling again – from $4 trillion in 2025 to more than $16 trillion in 2042. “In this MTD opportunity, financials (including capital market) and consumer discretionaries will see explosive expansion as they hit the tipping point,” the study said.
Financials and Capital Markets
In the MTD portfolio, Motilal has a 10% weightage to private banks, 3.3% to public sector banks, 6.7% to finance companies, and 20% capital markets.
On financials, it said, despite a steady growth, India’s retail credit penetration remains below global standards, and the banking sector credit growth is consistently higher than the GDP growth. The asset quality of the banking sector has also dramatically improved in the recent past, leading to a sharp drop in credit cost. “NBFCs are asserting themselves in India’s credit market and as prime movers of the economy. We expect banks and NBFCs to thrive in India’s MTD era,” it said.
In capital market, the brokerage sees enabling of digital onboarding of customers is leading to a massive retail participation, as indicated by the J-curve in demat accounts. “The sector is extremely asset light. Even very high growth requires very little incremental capital. Both, RoE and dividend payout are high.”
HDFC Bank, ICICI Bank, SBI, HDFC AMC, Motilal Oswal, MCX, Nuvama Wealth, and Bajaj Finance are among the 29 stocks in these sectors.
Discretionary Spending
In auto, which has 13.3% allocation in the MTD portfolio, it expects a strong discretionary play. Penetration of 2-wheelers and passenger vehicles still remains low compared to select developing countries, the study noted and said it expects both entry-level and premium motorcycles, along with entry level and SUVs, to do well. Eicher Motors, M&M, Hero MotoCorp, and Maruti Suzuki are part of its portfolio.
The portfolio also has allocation of 6.7% each to healthcare, insurance, and realty, and 3.3% each to airlines, cables, e-commerce, consumer durables, and telecom.
According to the study, at Rs 7.9 lakh crore, Bharti Airtel is the biggest wealth creator during 2000-2025, followed closely by ICICI Bank at Rs 7.4 lakh crore. The BSE has emerged as the fastest wealth creator with 2020-25 total return CAGR of 124%.