7 Best Insights to choose a company in Indian Stock Market

7 Best Insights to choose a stock in Indian Bearish Market 

with SENSEX and NIFTY falling down in the record number, due to the crashing of the financial market over the globe as a result of pandemic effect of coronavirus, Current Inflation Rate, Indian GDP going down and Increase in UNEMPLOYMENT rate.

In such scenario, it is considered as a golden and once in a lifetime  opportunity to invest and earn a good return. Selection of best company and its shares plays a major role in creating your portfolio and investing in the Indian markets.

Indian Share Market is highly VOLATILE and are solely dependent on global financial markets and work mostly on market sentiments and global news.

for example - if global market in US, CHINA and UK tumble down, it show its effect on Indian Market as well.

Global Financial Economy collapse has a huge impact on the Indian Economy

and Lastly any Positive or Negative News in financial situation of India affect the momentum of stocks values. 

It is more important that you always keep track of what happens in the global market and  with Indian finance News.

To keep it simple, ideal selection of stocks basically depends on its company fundamental and technical analysis.

The end goal of fundamental analysis is to arrive at a number that an investor can compare with a company current price in order to see whether the company is undervalued or overvalued.

we have shortlisted few factor which will help you in knowing a company and its stock value better.

I would like to keep the selection criteria Simple and not make it more complicated as its seems from outside. Below Listed 7 parameters is base for choosing a right company for Investment. 

1.INDUSTRY

Indian Industries is vast. Many Sector like Auto mobile, Aviation, Banking, Finance, Consumer Durable, Fast Moving Consumer Goods, Textile, Healthcare, Information technology, Service sector, Retailing, Oil and gas, Power, and Agriculture.

Selecting the sector wise industry which is sustainable in long term and whose chance of falling down does not depends on any financial instability should be main selection criteria.

Suggestion :Few Sectors which sustain and are more stable are 

Consumer Durable, 

FMCG, 

Power, 

Finance, 

Service and Information Technology. 

2. Market Capitalization 

Market Cap allow Investor to understand the relative size of one company versus another. It measure what a company is worth on the open market, as well as market's perception of its future prospect, because it reflects what investor are willing to pay for its stock.

Market Capitalization = Current Market Price * no of outstanding shares

SEBI in 2017 circular for mutual fund scheme divide MCAP into 

Large Cap : 1st - 100th company in respect to full MCAP.

Mid Cap: 150th  - 200th company in respect to full MCAP.

Small Cap: 250th onwards.

Large Cap  and  Mid Cap company can be selected based on your investing capital and low risk reward ratio.

usually large cap companies has Low Risk, High Liquidity, Less Volatility and Moderate Returns with good institutional investors. 

Suggestion - diversify your portfolio with more large cap for long term investment and mid and small cap for quick returns. 

3. (P/E ratio)

The Biggest mistake, what Indian Investor do is selecting the stock based on its pricing, it is wrongly assumed and believed  that Cheap shares are best share for earning a return. 

Price to Earning Ratio (P/E Ratio)

It helps investors to determine the market value of a stock as compared to the company's earning. Higher P/E Ratio shows that investor are willing to pay a higher price because of the growth expectation in the future.

Select a stock with moderate P/E ratio compared to its peers in that industry.

If you're looking for stocks with value i.e (Cheap), you'll look for those with low P/E ratios, while you'll look for those with HIGH P/E ratios, if growth is your focus.

Suggestion : Moderate P/E always best to play safe considering future growth. 

15 - 20 PE is considered to be the Good Ratio.

4.DEBT FREE and GROWTH

Once you made up a choice in selecting the sector in which you want to invest, second best parameter to look into the companies which are DEBT - FREE and have good gradual growth. 

Owning a debt free companies is naturally advantageous, but just being debt free is not important, growth should also accompany it. 

10 % debt is fine, if the companies has potential to grow periodically,

 I will prefer that instead of business with Zero Debt and no growth.

financial of the companies are always secured, if company does not have any debt.

I have listed here few 10 - 12 companies which is virtually debt free in various sectors. 

Comments : Safe, High chance of growth, Stable business model to show positive growth.

5. ROE and ROCE

Return on Equity (ROE)  and Return on Capital Employed (ROCE)

ROE is the percentage expression of a company's net income as it is returned as a value to the shareholders.

ROCE is to assess how efficiently a company utilizes all available capital to generate additional profits.

These 2 parameters put together will help in understanding

HOW PROFITABLE A COMPANY IS
HOW EFFICIENTLY IT IS UTILIZING ITS RESOURCES.

ROE of 15 -20% are generally considered good. 

A high ROCE value indicates that a larger chunk of profits can be invested back into the company for the benefit of shareholders. The reinvested capital is employed again at a higher rate of return, which helps produce higher earnings-per-share growth. A high ROCE is, therefore, a sign of a successful growth company.

6. Profit and Loss (balance sheet)

The profit and loss (P&L) statement is a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, usually a fiscal quarter or year.

A balance sheet is a statement of the financial position of a business that lists the assets, liabilities, and owner's equity at a particular point in time. In other words, the balance sheet illustrates your business's net worth.

A balance sheet, along with the income and cash flow statement, is an important tool for investors to gain insight into a company and its operations. ... The purpose of a balance sheet is to give interested parties an idea of the company's financial position, in addition to displaying what the company owns and owes.

Suggestion : Company Balance Sheet, Profit and loss, Cash flow Statement are readily available on various Finance Website Link - NSE, Money Control and Screener etc.

7. Honest, Transparent and Competitive management

In this Competitive Indian Market, where Quality services are being delivered, you would also  notice big scam and fraud done over the years by many reputed and well known companies. 

we all know the famous example of Vijay Mallya, Satyam and recently trending Rana Kapoor for YES BANK.

Therefore, it is very important that the stock and by extension the company you plan to invest in is run by honest, transparent, and competent management. The management includes Promoters, CEO/MD, CFO among others.

Suggestion - it very important for you to check on various search engine platform about track record of the company, its promoter share holding and its annual reports and meeting, Decision taken in meeting and quarterly results will give you a rough idea about the progress on the company.

Suggestion : as mentioned earlier, Indian Share Market work on sentiment and global financial market, its would be wise enough to stay updated with global factor responsible to take a bullish or bearish nature 

Last and Most Important - which most of Financial Analyst ignore while being an Investor is " TECHNICAL ANALYSIS "

Technical analysis of stocks is the study of the historical data of stocks, including volume and price. The aim of technical analysis is to use past behavior of the stock to predict the future price. In a volatile equity market, every investor wants to use the best method to analyze the stocks.

Few parameter used in Technical Analysis are
1. Price Action.
2. Volume.
3. Moving Average.
4. Trend.
5. Support and Resistance.

It seems EASY to enter into the market, it is equally tough for an investor to know when to EXIT in case the stock does not perform well as per your expectation.

Remember,  Indian Share Market is a random event and many factor are responsible to move the trend up and down. 

Technical Analysis Helps you to show the Exit door once you get the sense of Price Action moving against your estimated price or your risk value. 

Both Investing or trading has its own Risk, Knowing the Entry and Exit point in the market is where the Smart and Intelligent Investor Wins.

"Our favorite holding period is forever." - Warren Buffett.

Suggestion:
1. Invest your Extra Money...(i.e 1/10 of the money which is saved after all your necessary Expenses)
2. Keep Buying on Falls (i.e average your position)
3. Inverse Pyramid Method - Do not buy big position in Bull Market.
4. Keep Checking Volatility Index. Do not Invest in Market when volatility is high.
5. Keep Patience with your Investment.
6. Exit if you are not comfortable with your loss. ( psychologically, be prepare for 50% loss !!!!!)
7. Exit at RIGHT moment and at RIGHT Price to avoid more LOSS.

for more information on how to create your portfolio - mail us on swapnil.physio@gmail.com