Best Growth Stocks to Buy in India 2024

In this article, we will cover

• What are Growth stocks?
• Reasons for faster growth rate in the value of growth stocks
• List of Best Growth Stocks
• Characteristics of Growth companies
• Growth stocks vs Value stocks
• Factors to consider to identify the best growth stocks to buy now
• Portfolio Companies
• Important factors while evaluating Growth stocks.

What are Growth Stocks?

Growth stocks are stocks which are expected to grow at a faster rate than the industry average or the average rate of the industry in the given country. Faster growth means that the revenues and profits of the company are expected to grow faster than the industry average due to multiple factors such as:

• The company operates in an industry which is growing at a faster than average growth rate driven by increased penetration or adoption rate among its customers.
• The company has innovative products and/or services which are catching up in the market faster than their peers, thereby giving the company a competitive advantage over peers.
• The company employs new technology which is not only more productive but also more efficient than existing technology, thereby giving the company an edge over others and is driven by increased adoption.

The above-mentioned are just a few reasons among many which can result in companies growing at an accelerated rate.

Reasons for faster growth rate in the value of growth stocks

Faster growth means that the revenues and profits of the company are expected to grow faster than the industry average due to multiple factors such as:

• The company operates in an industry which is growing at a faster than average growth rate driven by increased penetration or adoption rate among its customers.
• The company has innovative products and/or services which are catching up in the market faster than their peers, thereby giving the company a competitive advantage over peers.
• The company employs new technology which is not only more productive but also more efficient than existing technology, thereby giving the company an edge over others and is driven by increased adoption.

The above-mentioned are just a few reasons among many which can result in companies growing at an accelerated rate.

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List Of Best Growth Stocks in India

Characteristics of Growth Stock companies

Growth companies offer returns better and faster than peers and hence have different characteristics as compared to the broader industry, such as:

• Growth stocks usually trade at higher price multiples and valuations among peers, being valued at a higher premium justified by the better returns offered by these companies. Price ratios include P/E, EV/EBITDA and P/B ratios among others.
• These companies usually do not declare dividends and even if they do, the dividends are very low. The reason for this being that these companies usually prefer investing their surplus cash into the business as it gives higher returns to shareholders rather than distributing the cash among them. Therefore, investors usually earn capital gains from the rise in their share price.
• Growth companies usually display a significantly higher growth rate because they tend to possess some kind of competitive advantage over other companies in the same industry. The competitive advantage gives growth companies a unique selling proposition (USP), which helps them sell and grow better than other companies within the same industry.
• Growth stocks usually trade with a stronger upward momentum over a longer term as compared to peers. The share price moves with the velocity as it adjusts to faster growth in revenues and profits earned by the company. While the momentum is strong, these companies may also exhibit more volatility among peers with average growth rates.
• Since growth companies usually enjoy a competitive advantage over other companies within the industry, they tend to enjoy a loyal, growing consumer base. The USP that such companies enjoy over their competitors ensures a constantly growing consumer base, which contributes to their increasing growth rate.
• While growth stocks are a very attractive investment option and can generate substantial profits over the long term, the level of uncertainty surrounding them in the short term contributes to a high-risk factor, thereby making them riskier as compared to more stable companies with average growth rate.

While growth stocks cannot sustain their rate of growth forever, as technology and trends change these companies stabilize their growth rates, these companies can provide investors with higher returns for a longer term such as 10-15 years as they penetrate and gain market share at a fast rate and generate strong profitability as the market around them develops and matures.

Growth stocks vs Value stocks

A very popular argument is of comparing growth stocks vs value stocks as they exhibit completely different characteristics when being evaluated. As mentioned earlier, a growth stock is characterized by higher price multiples and valuations and low dividend payouts while exhibiting a stronger and more volatile momentum in the market. As compared to this, value stocks trade at a lower price multiple, sometimes even lower than the industry average, while generating consistent and stable cash flows and regularly paying dividends to investors, ensuring consistent cash returns for shareholders.

Factors to consider to identify the best growth stocks to buy now

An investor needs to assess several factors to identify growth stocks for the long term which can consistently generate higher than average returns while ensuring that they sustain such growth over a longer period of time, supported by their business strategy and strong financials.

Assess the Sector/Industry Segment of the Company

An investor needs to first look at the sector the company currently conducts its business in. This is crucial to understand as the sector which has strong growth potential can offer higher growth to the investor. Strong growth potential can come from having scope to either expand or penetrate further into the market or both. If a sector also provides more headroom for increased pricing over time as it expands, that will only be beneficial for the given sector and the companies in it. The investor should also assess the number of participants in the sector and the intensity of competition to determine the growth opportunities for the company.

Industry Potential to Provide Growth

An investor needs to assess the position of the company in the supply chain of its industry and whether it can generate enough returns between its inputs and outputs to fuel growth. In the most basic sense, value addition is the difference between the value of raw materials and the value of finished goods. It is the value of the manufacturing and marketing processes that a company uses to convert raw materials into a finished product that it sells under its brand name to the final consumer as it adds value to the product/service it sells.

For example: oil marketing companies usually don’t have a large markup nor offer strong growth over the oil prices which move as per the regulation and crude oil prices, thereby making it a volume game and not one that adds much value on per unit sale. On the other end, majority participants in the NBFC sector have seen higher than normal growth both in terms of financials and stock price movement.

Return Generation for Shareholders

To assess this aspect, an investor needs to calculate certain ratios to determine the return generation as well as the quality of earnings. One such ratio is the ROCE (Return on Capital Employed). The formula for ROCE is EBIT/ (Total Assets – Current Liabilities). The ratio aims to compute the operating earnings a company generates on the capital it has invested into the business. The ratio indicates the efficiency with which the company utilizes its capital and the return it generates on that capital.

While this ratio is a good indicator, it should be used in conjunction with the cost of capital applicable for the company to determine the net return earned by the company. Another ratio to look at is the ROE (Return on Equity) which basically tells an investor how much of the profit is attributable to the shareholder and the quantum by which it grows the value of the company. This ratio is to be assessed in conjunction with the Cost of Equity, which is determined by assessing the required return on equity the investors have. The higher the ROE is over the COE, the better it is.

A higher ratio indicates stronger return generation from these companies which is critical in identifying growth stocks which are characterized by higher return ratios as well as higher price multiples over the industry average.

Management Quality

Among the most important factors in evaluating a business is the quality of its management. Efficient management teams will not only see through the various challenges facing an industry and navigate through them, but also transform their business models towards more attractive industries and higher growth of the business. Assess whether the board of directors and the management are different from each other as the BOD is responsible for larger company decisions while the management is engaged in the daily activities. Hence, the process of running a company involves balancing relationships and interests between the board, the promoters, the management, minority shareholders, auditors as well as other stakeholders.

The efficient handling of this balance indicates the strength of corporate governance. The higher and better the standards of corporate governance are, the better protected the minority shareholders of the company are and can be assured that the management will act for the benefit of shareholders. This can be ascertained by going through the annual report.

This is key for growth companies as these companies usually operate in high growth, high risk industries and a stronger management team will not only ensure maintaining a strong rate of growth over a longer term and delivering strong financial performance, but also ensure that the company is strong enough to weather through difficult times if any.

Portfolio Companies

Sona BLW Precision Forgings

The EV demand is at the cusp of rapid growth over the next decade and Sona BLW Precision Forgings (Sona Comstar) is poised to benefit from the global electrification. Battery EV growth as a proportion of Sona Comstar's revenue remains the dominating and secular theme, with the segment accounting for 29% of revenue in FY24. The company's pure ICE dependence continues to reduce steadily going from 25% in FY21 to 10% in FY24. Company has been awarded 54 EV Programs across 30 customers as at the end of FY24. Company has added orders worth Rs. 51 billion in its orderbook during FY24. Additionally, the management expects 45-50% of revenues will be from BEV segment by FY26.

The company serves 7 of the world's top 10 PV OEMs, 3 of the world's top 10 CV OEMs, 7 of the world's top 10 tractor OEMs, 5 of the world's top 15 EV OEMs, and 4 of the Indian top 15 Indian e-2-Wheeler OEMs. The strategic priorities include increasing the global market significance by winning more programs and addition of new customers.  The firm is also injecting large capex from internal accruals to increase the scale of operations. Order book remains solid at Rs 226 billion at the end of FY24 (7.1x FY24 revenue). EV contributes 79% of the order book (Rs. 179 billion). Continues order wins is the testimony of the company's focus to increase its footprint in the growing segment. 

The company rides high on a stellar growth trajectory as the company's revenue has increased at a CAGR of 35.4% while that of industry grew at a CAGR of 9.5% during FY99– FY24. Revenue share from BEV has grown 22x over 5 years, with absolute BEV revenue growth at 51x. Moreover, it has a proven track record of healthy Return on Equity and Return of Capital Employed at around 30% in past five years. Following the growth plan, company has completed acquisition of 54% stake in NOVELIC on 4 September 2023 for a total consideration is Euro 40.097 million (INR 3,577.97 million).

The company has the best-in-class EV exposure among domestic peers and has the technology edge. International market contributes majority of company’s business. Such high exposure places the firm for geographical concentration risk, exchange rate volatility, political instability, and devaluation of local currency along with the impact of economic environments on consumer behavior. Moreover, a spike in key raw materials increases the costs for the firm.

Sona Comstar’s ability for cost optimization programs and timely price increases will be the key monitorable in the future.

Bharat Rasayan

Agrochemicals are chemicals that help boost crop productivity through prevention of destruction of crops by pests such as insects, weeds, fungus, etc. The global economy, in general, and Indian, in particular, is facing a multitude of challenges such as to feed an ever-growing population, reducing arable land banks and dealing with adverse climatic changes. Under such circumstances, the traditional methods of growing more crops are rendered inadequate. There is a growing acceptance to launch advanced agrochemical solutions to achieve higher field productivity.

Indian agriculture is on a growth path, with an increase in investments and private funding in the past few years. The sector is expected to grow with better momentum in the next few years, owing to an increase in investment in agricultural infrastructure such as irrigation facilities, warehousing and cold storage. Factors such as reduced transaction costs, time, better port gate management and fiscal incentives will also contribute to this upward trend. Furthermore, the increased use of genetically modified crops is also expected to better the yield of the Indian farmers. Advancement in agriculture and allied sectors is positive for inclusive economic growth at the national level. India is the largest producer, consumer, and importer of pulses in the world. As farmers find themselves in a more comfortable situation, the agriculture sector will gather further momentum.

Apart from the loyal customer base that the Company is enjoying since the last several years now, many newer domestic as well as overseas customers are added to their portfolio during the year & same is expected to increase in near future due to their commitment of supplying high quality products in a time bound manner. Moving ahead, Bharat Rasayan remains poised to implement key initiatives across functions to enable itself to face market challenges and leverage the emerging opportunities. It remains focused on improving revenue growth and profitability, driven by high growth segments such as seeds and nutrients.

The company has delivered strong financial performance over the years, while delivering a strong standalone revenue and net profit growth of 20.73% and 29.8% CAGR respectively over the past 10 years. For FY23, its standalone ROCE is 20.4%. Despite the strong growth drivers, Indian agrochemicals industry faces challenges in terms of low awareness among a large number of end users spread across the geography. Managing inventory and distribution costs is a challenge for the industry players in the wake of volatility in the business environment.

KEI Industries

The Government’s huge push to develop infrastructure will fuel the need for quality cables and wires, which will boost the development of the C & W (Cables and Wires) industry in India. Power and Infrastructure form the most critical end-user industry of C&W and are also crucial for the sustained growth of the C&W industry.

KEI Industries Limited is amongst India’s top three wire and cable manufacturers, with a comprehensive product portfolio ranging from housing wires to Extra High Voltage (EHV) cables. The company has been integrated into Engineering, Procurement and Construction (EPC) services for power and transmission projects as well. The high-quality solutions have made the company a trusted and preferred provider in the Retail, Institutional and Export segments. It stands to benefit from multiple venues such as wire requirements from the Power & Infrastructure sector, which is touted to develop as the energy generation and distribution develops in India. Another segment of demand comes from rising development from Housing. Retail segment sales are also gaining more traction owing to faster offtake and higher margins for the company. Despite the recent rise in commodity prices, the company has been able to leverage its position and offers value-added products which allow it to pass on the rising costs onto its customers, allowing it to cushion the impact on margins to a certain extent.

The company has performed well financially, with the company seeing a strong rise in revenues as well as profitability, with standalone revenues growing by 14% CAGR over the last 5 years up to FY24, while the net profits grew at an industry leading pace at 26% CAGR over the same period. The company has generated an average ROE of 20% over the past 5 years, indicating a consistent return for shareholders.

The Company’s EPC and EHV segments are majorly exposed to government policy changes. The Company has major business involvement in power utilities, infrastructure, real estate and industrial sectors which are again cyclical in nature. Thus, its product revenue and demand are exposed to interest rate fluctuations and capex cycles which can affect the profit growth of the company.

Bajaj Finance

The NBFC sector primarily entails lending activities such as consumer loans, gold loans, personal loans, etc. but are different from banks as they do not take deposits from people. These companies rather borrow money from one institution and lend it out to consumers, thereby earning the interest differential between its lending and borrowing activities. This segment has been seeing rapid growth as the country sees an increase in disposable income and shift towards consumerism by Indians.

Bajaj Finance primarily operates in the consumer lending space, wherein it gives consumers loans for personal consumption purposes. The company has therefore seen a massive rate of growth driven by a fast rate of adoption and penetration of their lending, driven by their strong network across the country. Bajaj Finance has delivered strong performance aided by a diversified product mix, robust volume growth, prudent liability management, efficient operating costs and effective risk management. With an AUM of ₹ 330,615 crore as of 31 March 24, 34% up against ₹ 247,379 crore as of 31 March 2023, the Company has emerged as one of the leading diversified NBFCs in the country today. New loans booked were up 22% to 36.20 MM in FY24 as against 29.58 MM in FY23. Company has made highest ever customer franchise addition of 14.5 MM in FY24. It has also added 412 new locations in FY24. While deposits have grown by ₹ 15,485 crore during the year, cost of funds has went up to 7.74% as against 7.04% in FY23.

BAF’s asset quality has been no less than extraordinary. Its Net Non-performing assets have not breached the 1% number since FY11. Net NPA of company is at lower rate of 0.37% for FY24. Similarly, the bank’s Capital Adequacy has remained healthy in the range of 25%-29% in the past three years.  The current environment, where the macros are improving and the credit demand getting back puts the company in a good position. Bajaj Finance still stands out for its a) retail, granular loan book, b) Strong distribution with Tech focus-based Model, c) proven track record, d) superior rating d) Largest cross-selling on multiple Products. On the flip side, the company faces risk in case of defaults from customers, which may result in the deterioration of the AUM quality of the company.

Another risk may emerge from the interest rate cycle movement, which may impact the NIMs of the company, and therefore the income earned. Investors need to carefully observe the interest rate nature as well as the overall economic condition to assess the performance of the company.

Britannia Industries

The FMCG sector is one of the most resilient and among the fastest growing segments in India. The food segment is among the fastest growing segments in FMCG, driven by rising penetration of processed food consumption driven by penetration in both urban and rural demand and rising disposable incomes of households in India. Britannia is one of the largest FMCG companies in India, with a portfolio across multiple products such as Biscuit, Bread, Cake, Rusk, Dairy and Adjacencies. Biscuits, from which the company derives over 75% of its revenues, is India’s largest food category and is considered as an essential, in practically every Indian family’s consumption basket.

It is one of the most deeply penetrated categories in the country, reaching over 90% of the households. The per capita consumption of biscuit in India is comparatively low at 2 kgs versus 10 kgs in certain developed countries. The low per capita consumption and high levels of penetration provide a good base to increase consumption through appropriate business strategies. Bread is considered as a staple food in many parts of our country. Consumer preference for healthy & premium products is providing significant opportunity in this category. The company derives about 18% of its revenues from bakery products.

India is the largest producer and consumer of dairy products and currently contributes approx. 20% of the global production. In the past few years, the processed milk products market has witnessed sustained growth due to increasing urbanization, rising disposable income and proliferation of retail outlets beyond Tier 1 cities. The Company uses the intrinsic strengths of its brands, innovation capabilities, strong distribution network and cost efficiency programs to maintain an edge among peers in the industry. Britannia is well positioned with a strong management team, technology interventions and robust processes.

Financially, the company has delivered a robust set of numbers, with strong net profit growth of 24% CAGR over the past 10 years. It has also delivered a strong ROE of 66.6% while the ROCE stands at 48.6%, indicating a strong return on capital deployed by the company. Over past eight years, company has consistently gained market share in biscuit sales and has maintained its market leader position.

The company faces risk from any changes in trends towards its product offerings such as a trend wherein people move away from biscuits towards other products, thereby affecting the business of the company. Another risk the company faces is from any changes in food regulations which might cause it to change its ingredient and product mix, thereby possibly affecting its margins earned. Any impact on the input costs, such as volatility and rise in grain prices can also have an adverse impact on the company profits and result in business slowdown as well.

Video on how to analyse and pick Growth stocks

Model Portfolio For Best Growth Stocks in India

In order to get an exposure to best stocks for the long term, you need a total of ₹98,894 for the below curated portfolio as of 3rd May, 2024.

The below table covers some of the most important factors while evaluating Growth Stocks.

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Our Collection of Best Stocks to Buy

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