Analysing the Rise of Multibaggers in India

by Kristen White Blogger

After an unstable 2018 and a weak beginning for the year 2019, the Indian markets have seen a breathable recovery since mid-February. The flow of foreign investment has been steady (about Rs 492 billion in 2019) and has resulted in a strong performance of Indian markets.

India has surfaced as one of the top-performing markets in the developing market space. The financial year of 2019-2020 promises a new beginning with strong share market tips in India offered by the experts. The previous fiscal year did a fair job in creating multi-baggers.

The Rise of Multi-baggers

Early 2019 saw an excellent performance in large-cap stocks, as they tend to outperform in the most uncertain times. The small and mid-cap funds, however, need favourable valuations and the market to be in the risk on mode. Right now, it can be said that the markets are indeed in the risk on mode and the valuations in neutral zone.

With a reduction in key interest rates and lower capital cost, we can expect growth due to higher credits and an increase in profitability of firms with a lag. Since February 2019, there is an increase in mid-caps by 12.9 percent as opposed to 8.9% for Sensex. This outstanding performance of the mid-cap index is likely to continue in the future as well.

Identifying the multi-baggers is both a science and an art. As an investor, you can find the potential strong movers by focusing on key parameters. As per the government, India is expected to become a $5 trillion economy in the next five years and expand up to $10 trillion in eight years after that.

Many central banks are relaxing their policies and focusing on economic growth. We now have themes like discretionary consumption, realty, and financials that promise great multibagger recommendations. By following a disciplined and structured process, you can identify stocks that can deliver high returns consistently.

What to Look for in Multi-baggers?

Identifying the next multi-bagger can be done when you follow specific pointers. This checklist is very useful in avoiding mistakes while hunting for multi-baggers.

Identify a Suitable Firm

You can identify a suitable company by looking at industries that are witnessing high growth. The industry can either be new, one that is experiencing a disruptive innovation or belonging to a niche area, which will benefit other companies in the industry. The industry must also be promising and have a high market opportunity.

Buy at the Right Time

Once you identify the industry and company, it is not essential to buy those stocks immediately. Buying shares from a good company at the right moment will result in a multi-bagger. Consider buying the share at a low extrinsic value that usually delivers high returns. Also, make a note to check the most appropriate valuation system around. For instance, the price-earnings ratio can be applied only for businesses that have a definite terminal value and a predictable cash flow.

Future Business Potential

This is one of the first features you must check in a company. Have a look at the current products or services by the company. Do you think it will have a demand in the future? If yes, then it has a possibility of turning into a multi-bagger. You can even check companies that offer the best share market tips in India.

Low Debt Level

Checking the debt level of the company is the next step in the flowchart. Ideally, your choice of the company must be debt-free. However, you can also consider companies with low levels of debt. Take a look at the debt-equity ratio for determining the debt level.

Multi-baggers can indeed be tricky. While some multi-baggers can give good returns for an average portfolio, it is also essential to consider the needs of cash flow, risk tolerance, and volatility for capturing these returns.