BofA's Report On India's Markets:When most people hear the term "compounder," they think of the assistant at a doctor's clinic. But in the stock market, a compounder is something entirely different—and far more powerful. In market terms, a compounder is a stock that grows consistently at a compounding rate, turning small investments into substantial wealth over time. These are also known as multi-baggers in investing jargon.
According to a recent report by Bank of America Securities (formerly Merrill Lynch), India is now considered the best place in the world to hunt for such stock compounders. The report suggests that India is poised to offer some of the most promising compounding opportunities globally.
The International Monetary Fund (IMF) has also confirmed that India will continue to be the fastest-growing major economy through 2025 and 2026. Over the past 30 years, Indian markets have delivered a consistent return of 7% in dollar terms, second only to the United States. Importantly, this performance has been largely driven by earnings growth rather than inflated valuations.
Bank of America Securities outlines nine major drivers that make India an ideal destination for long-term investors seeking compounders:
1. Infrastructure Boom
India has invested more in infrastructure from FY15 to FY30 than it did in the previous 65 years combined. This includes roads, bridges, electricity, and more. According to an RBI study cited in the report, this infrastructure buildout has the potential to triple the economy.
2. Rising Productivity
Improvements in logistics, energy supply, and overall efficiency are leading to a sharp rise in productivity. The report draws parallels with the 2003–2007 phase, which saw a major boom in the Indian stock market.
3. Digital Revolution
With over 900 million internet users and the world’s lowest data costs, India has seen a 140-fold increase in digital transactions over the past eight years. The country now hosts the fourth-largest venture capital ecosystem globally.
4. Financial Inclusion
As of now, over 90% of Indians have bank accounts—up from just 35% in 2011. However, only 11–13% of people use formal credit systems. This leaves enormous room for growth in financial services.
5. Domestic Savings Shifting Towards Investments
Traditionally, household savings made up 60% of national savings in India. With falling inflation and improving balance sheets, these savings are now being directed toward capital formation—especially equity investments.
6. Rise in Discretionary Consumption
As India’s per capita income is expected to reach $5,000 by 2030, discretionary spending (spending on non-essential items) is expected to rise from 36% to 43%. This is driven by a growing middle class and increased preference for premium products.
7. Formalization of the Economy
Structural reforms like GST, UPI, and e-invoicing have expanded the formal sector. This not only broadens the tax base but also allows organized players to scale more efficiently.
8. External Trade and Forex Strengthening
With initiatives like the Production-Linked Incentive (PLI) scheme, labor reforms, and infrastructure spending, India may transition from being a current account deficit country to one with a current account surplus.
9. Clean Energy Investments
India has already invested $216 billion in clean energy and plans to invest an additional $270 billion by FY30. This positions the country as a global leader in decarbonization efforts.
Despite this promising long-term outlook, the report does issue a short-term caution. It predicts India's GDP growth rate for FY25–26 might be around 6.3%, slightly below the Reserve Bank of India’s forecast of 6.5%. As a result, they have set the Nifty year-end target at 25,000, implying limited upside in the near term.
Disclaimer:
This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research or consult with a qualified financial advisor before making any investment decisions. Market conditions are subject to change, and past performance is not indicative of future results.
