R&D focused stocks deliver 23.5 per cent annualised returns in five years
Companies with high research spending outperformed the NSE 500 TRI by nearly 10 percentage points between April 2021 and September 2026.
Companies that consistently increased their research and development (R&D) spending delivered average annualised stock returns of 23.5 per cent over the last five years, according to an analysis by Monarch AIF reported by The Economic Times.
The study examined 130 companies that saw a compound annual growth rate (CAGR) of more than 20 per cent in R&D spending between FY21 and FY26. During the period from April 2021 to September 2026, these firms achieved a stock price CAGR of 23.5 per cent, while the NSE 500 TRI returned 13.7 per cent.
The outperformance was highest among 27 companies that grew R&D spending by over 20 per cent and allocated more than 2 per cent of sales to research. These companies saw an average stock price CAGR of 32.5 per cent.
Abhisar Jain, head and fund manager at Monarch AIF, said that cutting research costs might improve reported profitability in the short term, but sustained investment in innovation can help businesses develop differentiated products and build capabilities for future growth.
The analysis noted that R&D investment remains limited in India, with only 28 of more than 2,000 listed companies spending over 5 per cent of sales on research. The average R&D expenditure relative to sales for listed companies fell from 0.64 per cent in FY16 to 0.56 per cent in FY26.
India's Gross Expenditure on Research and Development (GERD) was Rs 2.45 lakh crore in FY24, or 0.84 per cent of GDP. Jain said India needs to increase its R&D spend to approximately 2 per cent of GDP to reach its goal of becoming a developed economy by 2047.