R&D-focused stocks deliver over 23% annualised returns in five years, outperform NSE 500: Monarch AIF

The analysis covered 130 companies that recorded a compound annual growth rate (CAGR) of more than 20% in R&D expenditure between FY21 and FY26. Their average stock price CAGR of these companies stood at 23.5% between April 2021 and September 2026, outperforming the benchmark by nearly 10 percentage points.

The outperformance was more pronounced among companies that combined higher growth in research spending with greater R&D intensity. The 27 companies that grew their R&D expenditure by more than 20% and allocated over 2% of sales to research and development on a three-year basis delivered an average stock price CAGR of 32.5% during the period.

This was more than double the 13.7% return generated by the NSE 500 TRI.

Only 28 listed companies spend over 5% of sales on R&D

Despite the outperformance of companies with higher research spending, R&D investment remains limited across India's listed corporate sector.

Only 28 of more than 2,000 listed companies spend over 5% of their sales on research and development, while 59 companies allocate more than 3% of sales towards R&D, according to Monarch AIF.

The average R&D expenditure as a proportion of sales among listed companies declined from 0.64% in FY16 to 0.56% in FY26. This was despite an increase in absolute R&D spending, indicating that research investment continues to account for a relatively small share of corporate revenues.

India lags global peers in R&D spending

India's relatively low R&D intensity is also reflected in its national research expenditure.

The country's Gross Expenditure on Research and Development (GERD) stood at Rs 2.45 lakh crore in FY24, equivalent to 0.84% of GDP, according to the Monarch AIF report. The private sector accounted for 52% of the country's total R&D expenditure.

The figures highlight the difference between India's R&D intensity and the rising research expenditure of other major economies, particularly China.

Higher R&D investment key to India's 2047 ambition

India's ambition to become a developed economy by 2047 will require greater investment in research and the development of domestic intellectual property, according to the report.

Higher R&D spending can help Indian companies develop differentiated products, improve pricing power and compete more effectively in global markets.

“India urgently needs to emulate economies like the US, China and Europe and increase its R&D spend as % of GDP to ~2% if it aspires to realise its goal of a developed economy by 2047,” Jain said.

Disclosure: This article has been written by Kumar Gaurav, who is not a Sebi-registered Research Analyst or an Investment Adviser. Gaurav and their ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective Sebi-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here