Here are the
things an investor should consider when picking stocks:
1.
Earnings growth
2.
Stability
3.
Relative strength in industry
4.
Debt-equity ratio
5.
Price-earnings ratio
6.
Management
7.
Dividends
Here are the
essential steps (or checklist) that you need to follow for picking winning
stocks to invest in Indian stock market:
1.
Does the company have good fundamentals?
a.
Earnings Per Share (EPS) – Increasing for last 5
years
b.
Price to Earnings Ratio (P/E) – Low compared to
companies in the same industry
c.
Price to Book Ratio (P/B) – Low compared
companies in the same industry
d.
Debt to Equity Ratio – Should be less than 1
(Preferably debt<0.5 or Zero-Debt)
e.
Return on Equity (ROE) – Should be greater than
20%
f.
Price to Sales Ratio (P/S) – Smaller value is
preferred
g.
Current Ratio – Should be greater than 1
h.
Dividend – Increasing for the last 5 years
2.
Do you understand the products or services
offered by the company?
3.
Will people still be using this product or
service in 15-20 years from now?
4.
Does the company have a low-cost durable
competitive advantage?
For example, Colgate! It has become such a common
name in Indian homes that Colgate is considered as a synonym to toothpaste.
Another example is Cadbury– the chocolate producing company. This company is
dominating its industry and the people are even ready to pay a lot more to buy
its products. Similarly, Tata Motors has got a moat in ‘truck’ sector. Tata
Trucks has been in dominating in the Indian automobile sector for the last 5
decades.
5.
What is the company doing that its competitors
are not?
To understand better, let us analyze the Indian
automobile sector. There are a number of automobile companies in India.
However, when we consider the passenger vehicles (Cars and SUVs), Maruti Suzuki
is the leading company in India. There are a number of competitors against
Maruti in this sector like Tata Motors, Hyundai, Honda, Ford etc.
Nevertheless, Maruti Suzuki is dominating because
of the easily available service centers that it provides. Maruti’s service
center can be found on every corner of the streets. It’s really simple and easy
to get a Maruti car serviced even in small cities. On the other hand, try to
get your ‘FORD’ car serviced. You will rarely find any authentic ford service
center around you. That’s why people prefer buying Maruti cars in India. And hence, Maruti Suzuki is able to increase
its sales consistently and give good returns to its shareholders.
6.
Does the company have a big debt?
7.
Is the company’s management efficient and
qualified?
8.
Is the company constantly in the news and overly
popular?
https://tradebrains.in/how-to-select-a-stock-to-invest-in-indian-stock-market/
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