The report noted that China’s R&D expenditure as a share of GDP increased from 1.2 per cent in CY04 to 2.7 per cent in CY24, while India’s share remained broadly stagnant over the same period | Photo Credit: iStockphoto

Companies that consistently increased their research and development (R&D) expenditure have delivered stronger stock market returns than the broader market, with firms recording over 20 per cent R&D spending growth generating an average stock-price CAGR of 23.5 per cent between April 2021 and September 2026, according to an analysis by Monarch AIF.

The 130 companies that grew their R&D expenditure at a CAGR of over 20 per cent during FY21-FY26 delivered average stock-price returns of 23.5 per cent, nearly 10 percentage points higher than the 13.7 per cent generated by the NSE 500 TRI during the same period.

The outperformance was more pronounced among companies that combined higher R&D growth with greater research intensity. The 27 companies that recorded R&D spending growth of over 20 per cent and spent more than 2 per cent of sales on R&D on a three-year basis delivered an average CAGR of 32.5 per cent.

R&D returns

According to Monarch AIF, the findings challenge the perception that reducing R&D expenditure to protect near-term earnings necessarily benefits shareholders.

“While cutting research costs may improve reported profitability in the short term, sustained investment in innovation can help businesses develop differentiated products, strengthen competitiveness and build capabilities for future growth,” said Abhisar Jain, Head and Fund Manager at Monarch AIF.

The analysis also highlighted the limited prevalence of high R&D spending among India’s listed companies. Only 28 of more than 2,000 listed companies spend over 5 per cent of their sales on R&D, while 59 companies spend more than 3 per cent.

R&D spending

India’s Gross Expenditure on Research and Development (GERD) stood at ₹2.45 lakh crore in FY24, equivalent to 0.84 per cent of GDP, according to the figures cited in Monarch AIF’s report. The private sector accounted for 52 per cent of the total expenditure.

The report noted that China’s R&D expenditure as a share of GDP increased from 1.2 per cent in CY04 to 2.7 per cent in CY24, while India’s share remained broadly stagnant over the same period.

At the corporate level, average R&D expenditure as a proportion of sales among Indian listed companies declined from 0.64 per cent in FY16 to 0.56 per cent in FY26. This was despite an increase in absolute R&D spending.

2047 ambition

Monarch AIF highlighted the need for greater investment in research and innovation as India works towards its ambition of becoming a developed economy by 2047.

The report said greater investment in research and the development of domestic intellectual property could help Indian companies build 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 a percentage of GDP to around 2 per cent if it aspires to realise its goal of a developed economy by 2047,” Jain said.

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Published on November 3, 2026