In a fast-evolving market, investors are constantly seeking ways to stay ahead of the curve. One popular approach is growth investing, which focuses on identifying companies poised to reshape industries through innovation, scalability, and long-term expansion.
Growth investing targets businesses that may not yet be profitable but show strong potential to increase revenues and capture market share over time. These companies often prioritise reinvesting earnings into future growth, rather than returning cash to shareholders through dividends.
While this strategy is commonly associated with technology and healthcare, its principles apply across any sector where disruption and rapid development offer opportunities for significant returns. In this article, we break down what growth investing is, how to build a high-growth portfolio, and the key strategies investors can adopt to maximise long-term gains.
Risk assessment is key
Before creating a high-growth portfolio, understanding personal risk tolerance is crucial.
According to Nilesh D Naik, Head of Investment Products at Share.Market, “A 100% equity portfolio dropped by nearly 40% during the 2020 market crash. Many investors overestimate their risk appetite until they experience such losses. It’s important to assess how one would react to a 35–40% decline and decide equity allocation accordingly.”
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Key strategies to achieve a high-growth portfolio
According to Atul Shinghal, Founder and CEO, Scripbox, here are some ways in which one can curate a high-growth portfolio:
- Aggressive asset allocation: Prioritise high equity exposure depending on individual risk tolerance (70-90%) early on for potentially higher returns. To manage the risk one should diversify across market caps and geographies.
- Maximise post-tax return: Utilise ELSS for 80C deductions (less relevant under new tax regime). Consider equity-oriented funds and hybrid funds for favourable LTCG tax rates. Investing in NPS can be a good option depending on the CTC arrangement with the employer.
- Power of systematic investing: Employ SIPs for consistent investing and rupee-cost averaging, and STPs for staggered lump-sum investments.
- Strategic use of debt: Maintain a robust emergency fund (6-12 months expenses) and use debt for short-term goals or portfolio rebalancing, not primary growth. Consider PPF in this category.
- Consider alternative investments (with caution): Explore high-risk options like PMS, AIFs, Private Equity/ Venture capital funds depending on portfolio size.
- Funding your own venture / “failing fast“: Shinghal says that the dual income no kids (DINK) couples can reap benefits of their extra savings due to be child-free. “With two incomes and controlled expenses, you have the financial bandwidth to invest in your own entrepreneurial ideas, allowing for the “fail fast” methodology often crucial in start-ups. This means you can launch, test, iterate, and if an idea doesn’t work, pivot or move on without devastating your financial stability,” he says.
- Regular portfolio review & rebalancing: Annually review performance and asset allocation, adjusting to maintain desired risk profile (e.g., rebalance by selling some debt to buy equity during dips).
- Plan for future life stages: Consider future possibilities like supporting parents (at some stage you might have to support your spouse’s parents), parenthood or early retirement (FIRE) and start earmarking funds accordingly.
Main advantages of growth investing
Strong earnings growth potential: Growth companies often operate in sectors with high earnings potential. Whether launching a breakthrough product or expanding rapidly, these firms aim to outpace peers in profitability.
Compounding returns over time:
By reinvesting profits, these companies can accelerate their intrinsic value. This compounding effect can lead to exponential stock price appreciation, benefiting long-term investors.
Capitalising on trends and innovation: Growth stocks are often market disruptors. Companies operating in fields like renewable energy, AI, or biotechnology can capitalise on shifting consumer demands and technological advances.
Risks and drawbacks of growth investing
While growth investing can deliver strong long-term returns, it comes with notable risks.
Sharp market correction: Growth stocks often trade at high valuations based on future potential, making them vulnerable to sharp corrections if earnings fall short of expectations. These companies usually don’t pay dividends, which may not suit income-seeking investors.
Volatility: Additionally, they tend to be more volatile and sensitive to market sentiment, interest rate shifts, and economic cycles.
Execution risk: Another key concern is execution risk—many growth firms are still scaling, and missteps in operations or rising competition can derail progress.
Sector-specific risks: Growth portfolios also tend to be concentrated in sectors like tech or biotech, increasing exposure to sector-specific risks. Since gains often take years to materialise, this strategy is best suited for investors with a long-term horizon and the ability to ride out market downturns.
Growth investing demands patience and a long-term view. For investors who can tolerate risk, it offers the potential for substantial capital appreciation, especially when aligned with transformative industries and visionary companies.
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