How to Invest in High Growth Stocks in India

Remember how you learned to ride a bicycle when you were a kid? Have a quick recall. At first, you slowly started pedalling your bicycle while your father, brother, or any other known person kept the balance for you. After some time, with some practice, you gain speed and confidence, and no more losing your balance while making those sharp turns. Eventually, you become a pro!

In the stock market, growth stocks work the same way. They start small, reinvest their earnings (instead of distributing them as dividends), and with the right conditions, they accelerate into becoming market leaders, delivering significant returns to investors. Companies like Titan, Dixon Technologies, and Avenue Supermarts (DMart) were once relatively small players, but with consistent growth, they have become market leaders.

But how can you spot these fast-growing companies early? And more importantly, how can you wisely invest in these growth stocks to maximise your potential profits?

In this blog, we’ll understand everything about growth stocks, what they are, their key characteristics, and how to identify the best growth stocks in India. Whether you're looking for the best growth stocks to buy now or want to understand high-growth Indian stocks and how to invest in future growth stocks, you’ll be able to get all the information by the end.

What are Growth Stocks?

Growth stocks are the ones that are expected to have higher-than-average revenue and earnings growth compared to the broader market. Identifying these stocks can be subjective. Their long-term success depends not only on their performance but also on investors’ expectations.

These are the shares of companies that prioritise rapid expansion over shareholder payouts. Unlike dividend-paying stocks, which distribute earnings to shareholders, growth companies reinvest their profits into business expansion, R&D, and innovation. Thus, their payout ratios are lower.

As investors expect growth stocks to generate substantial profits in the future, they often trade at a high Price-to-Earnings (P/E) ratio. While they may not be profitable in the present, they are expected to be market leaders in the future.

To understand more easily, think of growth stocks as a startup. Initially, the company spends heavily on development, expansion, and marketing, with little to no profits. However, over time, as it captures market share and builds a strong brand name, the business becomes highly profitable. A perfect example of this is Amazon, which operated with minimal profits (and even losses) for years before becoming the e-commerce giant we know today.

Key Characteristics of Growth Stocks

Best growth stocks have specific traits that set them apart from the rest of the stocks trading in the market. From above-average revenue growth to a high valuation ratio and continuous reinvestment, these characteristics show why high-growth stocks have the potential to deliver exceptional returns. 

• Above-average revenue and earnings growth: These companies consistently achieve revenue and earnings growth in double digits, often exceeding 20% CAGR (Compound Annual Growth Rate). For example, in the last 5 years, Dixon Technologies has achieved a ~42% revenue CAGR. It’s benefiting from our country’s “Make in India” initiative and the rising demand for domestic manufacturing.
   

Source: Finology Ticker

• High valuation multiples: Growth stocks tend to trade at high Price-to-Earnings (P/E) and Price-to-Sales (P/S) ratios since investors have high expectations from these companies. For instance, Titan, a leader in India's jewellery and watch industry, has high P/E and P/S ratios due to its strong brand name and growth potential in the luxury and lifestyle segment.
   

Source: Finology Ticker

• Reinvestment of profits: Growth companies do not prioritise dividends; instead, they reinvest profits into expansion, R&D, or strategic acquisitions. This can potentially lead them to meet the high expectations of investors. For example, Avenue Supermarts (DMart) has never paid dividends to its shareholders since the beginning. Instead, the company has been using (or simply reinvesting) its earnings to open more stores and improve supply chain operations. In short, no dividends payouts in the last 25 years, but showcased enormous growth.
• Industry disruption and innovation: Many growth companies often belong to rapidly evolving industries, introducing new business models and technological innovations in the market. For instance, Dixon Technologies has leveraged its contract manufacturing expertise to innovate and scale efficiently. The company has established strong partnerships with global brands, which helped it develop a dominant presence in the Indian market. It has been serving brands in India’s consumer electronics industry and remains a key player in the country’s Make in India initiative.
• Higher volatility and risk: Due to market sentiments and performance expectations, growth stocks are volatile; experiencing sharp price fluctuations. For example, Avenue Supermarts (DMart) has seen sharp stock price movements due to changing consumer demand patterns and rising competition in the retail sector. After understanding the key characteristics, let’s now be honest. Identifying the right stocks requires in-depth research, analysing financials, and tracking market trends.

But if you want a simpler way to invest in fundamentally strong stocks without the hassle of stock-picking, Finology 30 is there for you. It’s a carefully curated basket of 30 quality stocks designed for long-term growth so you can invest with confidence. Check out Finology 30 today!

Advantages of Growth Stocks

Investing in high-growth stocks can be highly rewarding as they have the potential to provide investors with possible high returns and long-term wealth building. Here are some of the advantages of growth stocks:

• High capital appreciation: Growth stocks have the potential to multiply investors’ wealth by generating substantial returns over time. For example, over the past decade, Titan Co.’s stock has grown at a CAGR of ~30%, supported by steady retail expansion and strong brand equity.
• Market leadership: Many of these companies (growth stocks) dominate their respective industries, which gives them a competitive edge. For example, HDFC Bank, India’s largest private sector bank by assets, has delivered a CAGR of 20%+ in net profit over the past decade. This reflects its dominance in the retail banking sector.
• Wealth creation over time: As the legendary investor, Warren Buffett said, “The stock market is a device for transferring money from the impatient to the patient.” Similarly, growth stocks reward patient investors who hold them for a long-term (years). For example, Eicher Motors, the parent company of Royal Enfield, witnessed multi-fold stock appreciation as demand for premium motorcycles surged.

How to Identify Growth Stocks?

If you want to find the fastest-growing stocks in India, you need to do a thorough analysis. Here’s how you can do it:

• Look for strong revenue and profit growth: 
  • Check for companies who have achieved a CAGR of 20%+ in revenue and profits over the past 3-5 years. These are usually considered as high-growth stocks.
  • Moreover, if they have consistent quarterly and yearly growth trends, it indicates their sustainability.
• Check market capitalisation and industry trends: 
  • Consider checking mid-cap and small-cap stocks, as they often show higher growth potential.
  • Track trending industries such as technology, renewable energy, and healthcare, having high-growth prospects.
• Analyse Return on Equity (ROE) and Return on Capital Employed (ROCE):
  • ROE > 15% and ROCE > 20% indicate efficient capital utilisation.
  • Compare with the industry average to check whether they portray superior performance.
• Evaluate debt levels: 
  • Companies with a debt-to-equity ratio below 1 are financially stable.
  • For a company to have high growth potential, it should ideally have manageable debt levels.
• Monitor institutional holdings: 
  • High institutional ownership signals confidence in growth potential.
  • A sudden decrease in institutional holdings might indicate internal concerns in the company, possibly a red flag.
• Check valuation metrics: 
  • The P/E ratio should justify the stock’s growth.
  • If the PEG ratio (Price/Earnings to Growth) < 1, it indicates an undervalued stock.
• Look for competitive advantages: 
  • Companies with unique products, strong brand value, or disruptive technology can sustain long-term growth.
  • And companies with a large Total Addressable Market (TAM) tend to grow faster.
• Review recent financial performance and future outlook: 
  • Analyse earnings reports, guidance, and management commentary, as these can help you evaluate a company’s future growth.
  • Look for companies with clear expansion plans and strong demand forecasts, as they are preferable.

High Growth Stocks in India

Here are some of the best growth stocks for long-term investment in India:
 

Source: Finology Ticker

So, now you know some of the best growth stocks and the financials behind them. But there is no guarantee that these stocks will keep performing the same in the future as well. So, for tracking stocks and their current performance, Finology Ticker can be a great helping hand for you. 

Finding the best growth stocks can be overwhelming. But don’t worry, you don’t have to do it alone. With Finology 30, you get access to a basket of 30 carefully selected stocks to invest for long-term wealth creation. Finology 30 will help you build wealth without the stress of researching and tracking every stock.

Conclusion

Growth stocks in India have the potential to provide high returns, and they offer opportunities to create long-term wealth. But every coin has two sides. These stocks come with valuation risks and volatility. 

As an investor, you must focus on choosing fundamentally strong companies with consistent earnings growth and market leadership. If you’re looking for the best growth stocks to buy now, keep an eye on companies with high revenue growth, strong financials, and long-term growth potential.

Investing in high-growth Indian stocks can be truly rewarding, the condition is that you should take a disciplined and research-driven approach. And don’t forget to evaluate the associated risks with these stocks to maximise your gains.

You should also read these blogs:

• Effective strategies for reducing your Debt
• Good Undervalued Stocks to Buy in This Market Crash
• 10 Things You Must Do in This Stock Market Crash