Summary of this article
Motilal Oswal projects India's GDP will grow four times from $4 trillion to $16 trillion by 2042, expecting compound growth in many stocks .
The brokerage highlights a growing market cap-to-GDP ratio (from 0.5x in 2005 to 1.3x in 2025) as a key indicator of wealth creation.
The Mid-cap segment (stocks ranked 101 to 250) is the most potent hunting ground as per the report.
The year 2025 has been a rollercoaster for stock market investors. While D-Street battled several headwinds in the year, the headline indices touched fresh all-time highs in the last month of the year. Now, Motilal Oswal Financial Services (MOFSL) has shared its projection for the Indian economy in the year ahead.
The brokerage firm said India’s economy is likely to sustain its gross domestic product (GDP) growth to $16 trillion in the next 17 years, adding that this multi-trillion dollar growth will compound in many stocks. The $16 trillion projection is based on India’s trajectory of the past 17 years in which the GDP has surged to $4 trillion.
The brokerage firm has attributed this growth to multiple factors, namely the ‘wealth creation’ and capital formation done by India Inc emerging as a significant driver of growth especially with the market cap-to-GDP ratio growing from 0.5x in 2005 to 1.3x in 2025. Notably, MCap to GDP ratio indicates the stock market’s potential to contribute to GDP growth through wealth creation and capital formation. Wealth creation in this context refers to the process by which a company increases the market value of shareholder’s capital and is measured in terms of the surge in market capitalisation.
“Wealth creation is the process by which a company enhances the market value of the capital entrusted to it by its shareholders. It is a basic measure of success for any commercial venture. For listed companies, we define Wealth Created as the difference in market capitalisation over a period of last five years, duly adjusted for corporate events, such as fresh equity issuance, dividends, share buybacks, mergers, etc,” MOFSL said.
Drivers of Wealth Creation
MOFSL said in its report that large caps are set to offer better returns in the medium term compared to other market capitalisations on the back of a recovery in earnings growth. However, in the last five years (2020-2025) the rally has been concentrated in mid- and small caps, with bigger large-caps accounting for only 31 per cent of the wealth created against the long-period average of 50 per cent.
Notably, the report identified mega-caps as the top 100 stocks by market cap rank for any given year, midcaps as the next 150 stocks by market cap rank and mini-caps as all stocks below the top 250 up to 1,000th rank. It identified wealth creation by way of examining upwards movements of companies increasing their market capitalisation over a five year period. The brokerage has identified significant wealth creation happening in upward movement from the mini-to-mid category and the mid-to-mega category.
Mini-to-Mid and Mid-to-Mega Moves
The report identified 29 companies which moved from the Mini to Mid category, generating an average total return compounded annual growth rate (CAGR) of 68 per cent. On the other hand, 21 companies moved from the Mid-to-mega category, increasing their market capitalisation significantly and delivering a total CAGR return of 56 per cent.
The report said that while a fair number of companies shifted from the mini-to-mid category and delivered handsome returns, they need to be identified from a basket of 750 companies. Thus the midcap-to-mega-cap transition is the most “potent and focused hunting ground” for high performing stocks. The report said that over the next five years, 12-25 per cent of the stocks will make a transition to the mega-cap space and deliver handsome returns.
“The most potent and focused hunting ground for high-performing stocks is the Mid category i.e. 150 stocks with market cap rank 101 to 250. Over the next five years, 12-25 of these stocks (healthy 8-16% strike rate) will cross over to the Mega category and deliver handsome returns in the process,” MOFSL said.
Despite identifying the possible investing opportunities in the market, the brokerage cautioned investors against reacting emotionally to market dips and chasing short-term gains. Instead they should focus on reaping the full benefit by inculcating patience and discipline in their investment approach, the report added.
