Which are the top multibagger stocks in India right now?
As per Equitymaster's Stock Screener, these are the stocks which have given multibagger returns to shareholders -
These companies have been ranked as per the returns they have delivered to shareholders in the last three years on a compounded annual growth rate (CAGR) basis.
How to pick the best multibagger stocks in India?
While there's no guaranteed method, multibagger stocks have some qualitative rules.
#1 A solid competitive advantage
A company's ability to sustain its market share over time is what matters. A competitive advantage can be anything ranging from brand name and goodwill to patents, etc.
For example, IRCTC currently enjoys a 100% monopoly in its industry. It is an e-ticketing and catering company that has no competitors yet.
#2 Fast sales growth and a high current or future profitability
Consistent growth is certainly an indication the company is doing well and has good prospects. You should understand the business, its future prospects, expansion plans, and industry outlook.
#3 Low or falling debt levels
Multibagger stocks usually have low debt. If a company is highly leveraged and unable to generate profits, it can be a cause of concern for the investor.
#4 Growing free cash flow
Investors love companies that produce plenty of free cash flows. It signals a company's ability to repay debt, pay dividends, buy back stock, and facilitate the growth of business - all important undertakings from an investor's point of view.
#5 High and possibly increasing Return on Equity (ROE)
Equitymaster has a screener which can help you find high growth companies. You can start you search there.
And if you want to get a sense of how big returns could be, see our list of multibagger stocks here...
When should you sell a multibagger stock?
There isn't any standard thumb rule for when to sell a stock. However, you can follow a few guidelines.
You can sell the stock if the company's fundamentals take a turn for the worse. You could also sell if the stock has achieved the predetermined target price.
Other reasons for selling could be if the business has entered a mature or a declining phase in the growth cycle, and for rebalancing your portfolio.
Which stocks can become multibaggers in the long run?
Fundamentally strong stocks that have a long runway for growth and are trading at reasonable valuations have the potential to become multibaggers in the long run.
Apart from the above, another way to look for future multibaggers is to look into the past. Stocks which have delivered the highest returns in the past might be a good place to begin your search.
Which sectors can produce future multibagger stocks?
Multibagger stocks are not restricted to any sector. A sector can be re-rated and see a sharp rally at one time while it may underperform when the tide turns.
For instance, the paper sector was shunned by investors during the Covid-19 pandemic when demand was weak. Additionally, the prospects looked to be in danger with digitization taking over.
But when demand picked up as states lifted lockdowns and re-opened schools, paper stocks were big beneficiaries.
With changing market dynamics, one should invest in sectors that have scope for good long-term growth.