India crowned top destination for stock compounders, says BofA; lists 9 structural themes

Time of India

02-06-2025

In a powerful long-term endorsement of India's equity markets, Bank of America (
BofA
) Securities has ranked the country as the world's top hunting ground for
stock compounders
, driven by a confluence of nine structural growth engines. While bullish on India's decade-long trajectory, the brokerage struck a cautious tone on near-term market prospects, citing elevated valuations and global risks.
India is expected to be the fastest-growing large economy in 2025 and 2026, according to the International Monetary Fund. Over the last three decades, the Indian market has delivered USD-based returns of 7% CAGR—second only to the US. More significantly, these returns have been powered by earnings growth rather than valuation expansion, setting India apart globally.
Bank of America's strategist, Amish Shah said the confluence of nine structural drivers is likely to position India for sustained economic and corporate earnings growth. He emphasized that India ranks as the top country globally in providing a high number of stock compounders, and that this trend is likely to persist.
'Hence, India ranks as the top country globally to provide high number of stock compounders, a trend we expect to continue. However, we are cautious on markets near term as valuations seem full & markets are ignoring risks of likely slowing global growth,' Shah wrote in a strategy note.
Shah highlighted that India's outperformance is built on strong fundamentals, regulatory consistency, corporate execution, and a vast domestic consumption base. With India projected to become the world's third-largest economy this decade—surpassing Germany—the macro setup offers a compelling backdrop for equities.
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Nine Structural Themes Fueling India's Growth Outlook
BofA outlined nine long-term themes that make it constructive on India's equity outlook:
Infrastructure Boom:
India is on track to add more infrastructure between FY15 and FY30 than it did in the previous 65 years, with a projected 3.25x economic multiplier according to an RBI study.
Productivity Gains:
Improvements in logistics, energy efficiency, and capital-output ratios suggest a productivity renaissance akin to the 2003–07 boom years.
Digitization:
With more than 900 million internet users and ultra-low data costs, India has witnessed a 140x surge in digital transactions in eight years, fueling a fast-growing digital economy and the fourth-largest venture capital ecosystem globally.
Financialization:
Over 90% of Indians now have bank accounts, up from 35% in 2011, but formal credit penetration remains low at 11–13%, providing significant room for expansion in financial services.
Household Savings Strength:
Households contribute over 60% to the national savings pool. Improving balance sheets and easing inflation are expected to further support domestic capital formation.
Discretionary Consumption Shift:
As per capita income nears $5,000 by 2030, the share of discretionary consumption is expected to rise to 43%, up from the current 36%, driven by premiumization and a growing middle class.
Formalization Push:
Reforms like GST, UPI and e-invoicing are driving growth in the formal sector, broadening the tax base and creating scale benefits for organized players.
Improving External Position:
PLI schemes, labor reforms, and infrastructure investment could transform India from a current account deficit country into one running surpluses.
Decarbonization Momentum:
India has already invested $216 billion in clean energy over the last decade, and is expected to deploy another $270 billion by FY30.
Market Outlook: Long-Term Conviction, Short-Term Caution
Despite this strong structural case, BofA remains cautious on India's equity markets in the short term. It expects GDP growth to come in at 6.3% in FY26, slightly below the Reserve Bank of India's 6.5% forecast, citing only a shallow revival in GDP, capex, and consumption.
The brokerage has retained its year-end Nifty target at 25,000, indicating no further upside after the recent rally. It flagged seven emerging risks that warrant caution on large caps and broader markets, although specifics were not detailed.
BofA's stance is clear: India's long-term equity story is underpinned by deep structural change and remains one of the most attractive globally. But in the near term, stretched valuations and global headwinds demand a more conservative approach.