Source: MSCI, each country is represented by the broad country MSCI index, data as of 22/05/2025
The Indian equity market as a whole, possesses all the attributes of a quality stock. We discuss why!
Setting the stage
India’s equity market continues to distinguish itself globally as a fertile landscape for high-quality businesses. For long-term investors, it presents a compelling combination of structural economic growth and resilient corporate fundamentals—essential ingredients for sustainable compounding returns.
In previous articles, we’ve explored India’s long-term growth trajectory, characterised by strong economic expansion and low volatility, as well as the robust earnings profile of its listed companies (Harnessing India’s Growth and A High-Quality Asset at a Cheap Price). In this piece, we turn our attention to another hallmark of India’s equity market—its impressive return-on-equity (ROE) and disciplined use of debt.
Over the past two decades, Indian companies have consistently delivered average ROEs above 15%, outperforming their global counterparts. Importantly, this strong performance has not come on the back of financial leverage. Unlike many companies in developed markets that rely heavily on debt to enhance returns, India’s top corporates generate high returns through operational efficiency and organic growth.
Source: MSCI, each country is represented by the broad country MSCI index, data as of 22/05/2025
Corporate debt levels in India remain relatively conservative. This prudence reflects the strength of domestic consumption, global competitiveness, and disciplined capital allocation—factors that support sustainable growth without the risks associated with high leverage.
Case study: Bajaj Finance
A standout example is Bajaj Finance. Over the past decade, the company’s share price has increased by more than 2000%, equating to an annualised return of 113.9%. This performance is underpinned by consistently high earnings quality—average EPS growth of 36.0%, a stable net profit margin of 22.2%, and ROEs of 15% or more.
Source: Trendlyne, data as of 22/05/2025
Aside from its pristine fundamentals, Bajaj Finance’s success also reflects the broader shifts in India’s financial ecosystem, including increasing formalisation, digital infrastructure growth, and rising household participation in formal financial markets.
Where to next?
India remains one of the world’s fastest-growing major economies. Its expanding middle class, urbanisation, and digital adoption continue to provide fertile ground for quality companies to grow sustainably. For investors focused on active stock selection, India offers the potential to uncover tomorrow’s market leaders—companies like Bajaj Finance that combine strong fundamentals with long-term growth potential.
