A Guide to Investing in Growth Stocks
What are growth stocks?
Growth stocks exhibit a growth rate that is much higher than the market’s average growth rate. It shows that the stock grows faster than the market’s average stock, which causes earnings to increase faster. These stocks don’t pay dividends.
Many small-cap stocks are considered fast growing stocks in India. However, some larger companies may also be growth companies.
Trending growth stocks list in 2023
Here’s a list of popular high growth stocks
- Jindal Stainless Steel
- Polycab India
- Deepak Nitrite
- Bajaj Finance
- Adani Green Energy
- Varun Beverages
- KEI Industries
- Avanti Feeds
- JSW Steel
What are the various features of fast growing shares?
- Risky investment: Growth stocks have a higher potential for future returns, but they also carry a higher risk than other investing categories like value stocks or corporate bonds. The primary threat is that the actual or anticipated growth won’t carry over into the future.
- High P/E ratio: Any sector or industry may have growth stocks, which often trade at a high price-to-earnings (P/E) ratio. They might not be making money right now, but they should in the future.
P/E ratio = market value per share / earnings per share
- High PEG ratio: Price earnings to growth ratio is a ratio that is taken into consideration to evaluate a growth stock. The key benefit of PEG ratio over P/E ratio is that it accounts for the annual increase in the overall profits per share of a company. A high PEG ratio suggests that a company has performed very well.
- High RoE: Companies in India that raise money through growth stocks often have a record annual return on total equity. Higher the RoE, more valued growth stocks.
How to identify growth shares?
- High growth potential: Look for companies that have a history of high revenue and earnings growth.
- Strong market position: Identify companies that have a dominant position in their industry, with a strong competitive advantage.
- Innovative products/services: Look for companies that have a pipeline of innovative products or services that have the potential to disrupt their industry.
- Experienced management team: Companies with experienced and competent management teams are better positioned to navigate market challenges and drive growth.
- Large and expanding market opportunity: Identify companies that are operating in markets with significant potential for growth.
What are the benefits of investing in high growth stocks?
- Potential for high returns on investment as a result of the company’s strong growth trajectory
- Diversification of portfolio with exposure to different industries and sectors
- Protection against inflation as the company’s earnings grow over time
- Long-term growth potential for sustained returns
What are the risks of investing in growth stocks?
- Volatility and risk of price fluctuations due to market conditions and changes in investor sentiment
- Dependence on market conditions that can affect the company’s growth potential
- Possibility of market saturation as competition increases and growth slows down
- Risk of overvaluation, where the company’s stock price becomes detached from its fundamentals
Is growth stock a good investment?
Fast growing stocks in India may provide you higher capital growth as compared to any other type of stock. These businesses grow at a pace that is much faster than the industry average. Thus, investing in growth companies can increase the value of your money over the long and short terms. Given optimal market circumstances and price rise over the long run, your money may even double with further compounding.
Your money may outperform inflation by investing in growth stocks. According to financial experts, the true growth of your money is the growth rate minus inflation.
What are the alternate options to growth stocks?
Growth stocks are highly volatile and are only meant for people with a high-risk appetite. Investors who don’t see growth stocks fit in their portfolio can look at Value stocks.
Shares of companies that are trading at a discount are known as value stocks. Value stocks often have strong dividend payout ratios and the price of the stocks is typically lower compared to other stock categories since they are undervalued.
How to build a growth-oriented investment portfolio?
- Fundamental analysis to evaluate the company’s financial health, management, and competitive advantage
- Technical analysis to identify trends and patterns in the company’s stock price
- Growth investing strategies that focus on high-growth companies with a long-term perspective
- Value investing strategies that focus on undervalued companies with strong fundamentals
How to invest in growth stocks?
Growth stocks in India can be valuable to any investment portfolio, providing diversification and potential returns.
One way to invest in growth shares is through traditional stock market investing. This involves researching individual companies and buying shares of stock directly.
Another way to invest is via exchange-traded funds (ETFs). Investors can choose from various growth-oriented ETFs, which provide exposure to a diversified portfolio of growth companies.
Mutual funds are another option for investing in growth shares. These are professionally managed investment portfolios that pool money from multiple investors to buy a diversified portfolio of stocks. Like ETFs, there are a variety of mutual funds that focus on growth investing.
Investing in growth stocks via smallcase
You can also invest in a basket of high growth stocks in India via smallcase. Simply go to smallcase.com or the smallcase app, and login via your phone number. Then, go to ‘Discover‘ and then click on ‘All smallcases‘. There you can filter the smallcases based on ‘investment strategy’ by selecting ‘growth’. You’ll find an array of stock portfolios that are based on the growth investing strategy. Just pick the one that fits your investment criterion.
Make sure that you do your diligent research before picking the right stock, keeping in mind your long-term investment goals and risk appetite.
In conclusion, investing in growth stocks can be a lucrative strategy for investors looking to maximize their returns over the long term.
With the right research and strategy, investors can potentially capitalize on the growing share price of these high growth stocks in India.
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