Which stocks to buy for long term investment in India

The stock market is a very lucrative option to create wealth. But the most vital thing is to select perfect stocks that have chances to grow. Are you hunting high and low for the best stocks to buy in India for long term?

Then you are in the right place. Here in this detailed guide, we have provided the very crucial instruments to get success in the stock market. You will not only learn how to pick the best stocks but also get detailed insights of which stocks to buy for long term investment in India.

No matter what amount you have invested in the stock market. The single aspect that differs the result is that for how many years you stay invested in the stock market.

Why Long-term?

Let’s make it clear with an example.

If you start investing ₹5000 a month for the upcoming 30 years then you will get ₹2,81,00,000 assuming 15% CAGR. On the contrary, if you start investing the identical amount for the next 20 years then the deemed corpus will be ₹66,35,314 assuming 15% CAGR.

Do remember, a stock market is a voting machine in the short run but a weighing machine when you stick to the investment for the long run.

How to pick the best stocks to invest in India for long term?

Now, let’s dive into how to pick the best stocks that will yield superior returns in the long run.

When it’s time to pick the best stocks, do analyze the following 10 parameters before investing.

Parameter #1. Debt to Equity Ratio

To check the financial health of the company you want to invest, you will find the Debt to Equity ratio a handy tool. By dividing the total liabilities a company has with its total shareholder’s equity, you can calculate the debt to equity ratio.

How to Calculate the Debt to Equity Ratio

By analyzing the debt to equity ratio you can gauge whether the company’s excellent growth is accelerated by pumping the external capital or not. Do remember, debt is not always a red alarm. Analyze carefully whether the interest payables on the debt capital surpass the growth or not. If the growth is much higher than the interest payable, you can invest in those companies.

As a good rule of thumb, invest in those companies that have a debt to equity ratio below 0.25 or have a debt-free status irrespective of sectors.

Parameter #2. Profit Margin Growth

Simply put, profit margin helps a retail investor to gauge how the company generates profit by running a business operation.

Profit margin gives a detailed insight of how much profit is made per rupee of sales generated by the company. If the company’s profit margin is 12% then it can be assumed that the company has made a profit of ₹12 where its total sales stand at ₹100.

Start investing in those companies the profit margin of which touches two-digit growth or exceeds the peer average.

Parameter #3. Earnings Per Share

Earnings per share is calculated by dividing the company’s profit in a financial year with its total shares outstanding.

How to calculate Earnings per Share

When the company delivers a rising EPS year on year, then the shareholders will pay more for a share. Thereby the stock prices will surge to a higher level.

Invest in those companies that have delivered two-digit profit growth in the last 5 years. It is because the higher EPS of the company may increase the dividend to cheer the shareholders.

Parameter #4. Dividend Payout

If you are looking for stocks that will pay a regular dividend then you must invest in dividend-paying stocks.

Dividend rates give detailed insights of what rupee you can expect when the company declares a dividend.

Before investing in any company, do check if the company has a track record of paying dividends regularly and delivers robust earnings during the past 5 years.

Do invest in those companies where PAT increases year on year and have marginal debt obligations.

Parameter #5. Return on Equity

Return on equity (ROE) can be measured by dividing the net income a company generates with its total shareholder’s equity.

How to calculate ROE

Return on equity shows the efficiency of the management of a company to generate profit from the capital available through running a business.

ROE varies from sector to sector. So, it’s a tuff call to deliver which company is the best company to include in your stock portfolio. But as a good rule of thumb, do invest in those companies that have delivered a sustainable ROE of 15%.

Parameter #6. Return on Capital Employed

To gauge the company’s profitability and capital efficiency, Return on Capital Employed (ROCE) is a widely used key matrix among the brokerages and analysts.

Return on Capital Employed can be calculated by dividing Earnings before Interest and Tax to the company’s Capital Employed.

How to calculate ROCE

By analyzing the RoCE, you will find whether the management is efficient to generate profit by running a business and leverages the assets that are available. To analyze the performance of a company that is operating in the capital-intensive sectors such as Utilities or Telecom, you will find RoCE a handy tool that will give detailed insights of how the management efficiently manages the finances that have significant outstanding debt.

Parameter #7. Price to Earnings Ratio

The price to Earnings Ratio will help you to find whether the company is available at an attractive valuation or not. The P/E ratio takes account of the current market share price of a company and the per-share earnings in a financial year. This will help you to find if the stock is trading much lower than its intrinsic value.

How to calculate Price to Earnings Ratio

When you invest in a company that has P/E 25, then it can be assumed that it will take 25 years to earn back your investment if we can assume that the profit neither surges nor plummets.

But you must apply the P/E ratio in an apples-to-apples comparison as every sector or industry has a different price-to-earnings ratio. As a general accepted rule, invest in those stocks that maintain the P/E at much lower than the industry average when the company has delivered robust earnings over the past 3 years.

Parameter #8. Price to Book Ratio

By comparing the company’s market capitalization and book value, you can gauge if the stock is undervalued or overvalued. Dividing the market price of a company by its book value per share, the result will be the Price to Book ratio.

How to calculate Price to Book Ratio

Book value per share tells a retail investor what he will get if the company should go bankrupt after paying all the debts that the company has outstanding.

how to calculate Book Value per Share

It is a tuff call to pinpoint an ‘ideal’ price to book ratio. The price to book ratio varies across various sectors or industries. When you haven’t found any company with a price to book ratio of <1, invest in those companies that are with a Price to Book ratio between 1 & 3.

Parameter #9. Beta

To witness the volatility in the stock prices, Beta is a key matrix. Typically ‘Beta’ is the measurement of how much volatile a stock is. If the beta of a stock is 1.5 then it means that the stock will surge 150% if the market surges 100%. On the contrary, if the market plummets 50% then the stock plummets 75%.

Parameter #10. Current Ratio

The Current Ratio is a liquidity ratio that evaluates the company’s ability to clear all the outstanding debts that are payable within a year. The Current Ratio can be calculated by dividing the current assets a company has by its total liabilities that are due within a year.

How to Calculate Current Ratio

The current ratio of a company reveals the ability of a company to run the business operation as usual after clearing the debt obligations. Choose those companies that maintain a current ratio of 1.5. It signifies that the company still has enough capital to run the business operation after clearing all the debts in the short term.

Which stocks to buy for long term investment in India?

After analyzing a stock at the above-mentioned parameters, here are the 10 best stocks to buy in India for the long run.

HCL Technologies

This is an Indian multinational company that operates in Information Technology across 40+ countries. HCL Technologies are engaged in developing disruptive technologies namely Automation, Cloud, Cybersecurity, etc. These technologies have enabled the company to enter its footstep across various sectors/industries namely automobile, aerospace, banking, energy, consumer durables, defense, insurance, etc. The company has made strategic alliances that have enabled the company to develop capabilities not only in Europe or America but also in Asia.

Let’s take a glance at the HCL Technologies’ numbers:

  • Debt to Equity Ratio – 0.09
  • Revenue Growth – 21%
  • Profit Growth – 24%
  • Earnings per Share – ₹70
  • Dividend Yield – 1.04%
  • CAGR – 27%
  • Price to Earnings Ratio – 19.75
  • Price to Book Ratio – 4.97
  • Beta – 0.86
  • Current Ratio – 1.62

Deepak Nitrite

Deepak Nitrite operates in the chemical sector. It produces and supplies organic and inorganic chemicals namely Sodium Nitrite, Sodium Nitrate & Nitro Toluenes. Deepak Nitrite has occupied a whopping market share of  70% in Sodium Nitrite, Sodium Nitrate & Nitro Toluene segment in India. Deepak Nitrite is the third-largest producer of Xylidines, Cumidines, and Oximes globally with a customer base across 30+ countries.

Let’s take a glance at the Deepak Nitrite’s numbers:

  • Debt to Equity Ratio – 0.65
  • Revenue Growth – 26%
  • Profit Growth – 63%
  • Earnings per Share – ₹24
  • Dividend Yield – 0.29%
  • CAGR – 24%
  • Price to Earnings Ratio – 32.47
  • Price to Book Ratio – 13.72
  • Beta – 1.61
  • Current Ratio – 1.54

Bajaj Auto

Bajaj Auto is not only India’s second-largest but also the third-largest two-wheelers manufacturer. Apart from that, Bajaj Auto is the world’s largest three-wheeler manufacturer. Bajaj Pulsar, Bajaj Chetak, Avenger are the few brands of Bajaj Auto in the 2-wheeler segment.

The company offers 2-wheeler bikes and 3-wheeler auto-rickshaws. It helps the company to cater to a wide range of customers.

Let’s take a glance at the Bajaj Auto’s numbers:

  • Debt to Equity Ratio – 0
  • Revenue Growth – 10%
  • Profit Growth – 12%
  • Earnings per Share – ₹03
  • Dividend Yield – 3.16%
  • CAGR – 29%
  • Price to Earnings Ratio – 23.59
  • Price to Book Ratio – 5.15
  • Beta – 1.19
  • Current Ratio – 1.56

ITC Limited

ITC Limited is an Indian conglomerate that deals in the businesses of Agrobusiness, Cigarettes, FMCG, Hotels, Packaging, Paper boards, and Specialty Papers. The company’s headquarter is located in Virginia House, Kolkata.

ITC Limited has the largest market share of whopping 80%+ in the tobacco segment. Wills Navy Cut, Gold Flake Kings, Classic Silk Cut, Flake, etc. are the well-known Tobacco brands of ITC Limited. When we take a look at the FMCG segment, Aashirvaad, Sunfeast, Bingo, Yippee!, Candyman, Vivel, Engage, Savlon, Classmate, etc. have emerged as the market leaders in their respective categories.

Let’s take a glance at the ITC Limited’s numbers:

  • Debt to Equity Ratio – 0
  • Revenue Growth – 10%
  • Profit Growth – 14%
  • Earnings per Share – ₹78
  • Dividend Yield – 4.88%
  • CAGR – 27%
  • Price to Earnings Ratio – 19.30
  • Price to Book Ratio – 3.91
  • Beta – 0.91
  • Current Ratio – 4.13

Reliance Industries

Reliance Industries Limited is an Indian company that operates in the petrochemicals, energy, textiles, and telecommunication sectors.   In respect of Market Capitalization, Reliance Industries is the largest publicly traded company in India. As of 2020, Reliance Industries became the first Indian company to surpass $200 billion in market capitalization. This is the first private company to be featured in the Fortune Global 500 companies list and ranked #96 back in 2020.

What gives Reliance Industries a competitive moat is that it offers 4G wireless services throughout the nation and is quite popular under the brand name of ‘Jio’.

Let’s take a glance at the Reliance Industries’ numbers:

  • Debt to Equity Ratio – 0.64
  • Revenue Growth – 25%
  • Profit Growth – 13%
  • Earnings per Share – ₹48
  • Dividend Yield – 0.26%
  • CAGR – 32%
  • Price to Earnings Ratio – 34.32
  • Price to Book Ratio – 1.71
  • Beta – -0.34
  • Current Ratio – 0.63

HDFC Bank

HDFC Bank is the second-largest public sector bank in respect of not only the assets the company has but also market capitalizations. HDFC bank offers various banking solutions namely credit card, retail banking, commercial banking, etc. by operating a banking network of 5,485 branches across 2,866 cities and towns to serve customers the best plausible way. Plus, HDFC Bank has 14,533 ATMs across the country to get instant cash throughout the country. HDFC Bank has bagged various rewards and recognitions from various reputed financial rating institutions namely Financial Express, Euromoney, etc.

Let’s take a glance at the HDFC Bank’s numbers:

  • Revenue Growth – 19%
  • Profit Growth – 21%
  • Earnings per Share – ₹70
  • Dividend Yield – 0.16%
  • CAGR – 19%
  • Price to Earnings Ratio – 28.84
  • Price to Book Ratio – 4.94
  • Beta – 1.09

Kotak Mahindra Bank

Kotak Mahindra Bank is one of the leading private sector banks in India. It offers various financial solutions namely retail and personal banking, life insurance products, and wealth management services. The company facilitates banking services to 2.7 million customers with 1300+ branches and 2500+ ATMs across 600+ cities and towns.

Let’s take a glance at the Kotak Mahindra Bank’s numbers:

  • Revenue Growth – 22%
  • Profit Growth – 21%
  • Earnings per Share – ₹99
  • Dividend Yield – %
  • CAGR – 25%
  • Price to Earnings Ratio – 40.77
  • Price to Book Ratio – 5.67
  • Beta – 1.20

PNC Infratech

PNC Infratech is engaged in the construction, development of bridges, highways, flyovers, airport runways by adopting state-of-the-art & sustainable technologies. The company completes the projects on time. It operates in 29 locations across the country.

Let’s take a glance at the PNC Infratech’s numbers:

  • Debt to Equity Ratio – 1.28
  • Revenue Growth – 25%
  • Profit Growth – 43%
  • Earnings per Share – ₹03
  • Dividend Yield – 0.19%
  • CAGR – 22%
  • Price to Earnings Ratio – 15.83
  • Price to Book Ratio – 2.70
  • Beta – 0.64
  • Current Ratio – 1.96

Coromandel International Limited

Coromandel International is an Indian company that is engaged in the production and distribution of Crop protection fertilizers including insecticides, fungicides and herbicides, pesticides, and specialty nutrients including Organic Fertilisers. Coromandel International is the second-largest producer of not only phosphatic fertilizer but also pesticides in India. The company has expanded its business to around 60+ countries.

Let’s take a glance at the Coromandel International’s numbers:

  • Debt to Equity Ratio – 0.38
  • Revenue Growth – 7%
  • Profit Growth – 9%
  • Earnings per Share – ₹48
  • Dividend Yield – 1.55%
  • CAGR – 23%
  • Price to Earnings Ratio – 16.11
  • Price to Book Ratio – 5.33
  • Beta – 0.58
  • Current Ratio – 1.45

UltraTech Cement

This not only is the largest manufacturer of grey cement, Ready-mix Concrete, and White cement in India but also accounts for 30% of total Indian exports. UltraTech Cement has a whopping 19% market share in the respective segment.

UltraTech Cement has a vast distribution network of 90,000+ dealers and retailers across the country. UltraTech Cement has a global presence in the countries namely Bahrain, Bangladesh, Sri Lanka, and UAE.  ‘UltraTech’, ‘UltraTech Concrete’, ‘UltraTech Premium’, Birla Super’, ‘Birla White’, etc. are the well-known brands of UltraTech Cement.

Let’s take a glance at the UltraTech Cement’s numbers:

  • Debt to Equity Ratio – 0.55
  • Revenue Growth – 12%
  • Profit Growth – 24%
  • Earnings per Share – ₹63
  • Dividend Yield – 0.19%
  • CAGR – 21%
  • Price to Earnings Ratio – 28.06
  • Price to Book Ratio – 5.02
  • Beta – 1.02
  • Current Ratio – 0.90

Multibagger Stock Pick

Hope, this article will help you to pick the best shares to invest in India for long term. Have I missed the best stocks to buy in India for long term? Feel free to suggest if I have missed any so that I can add the best shares to buy in India for long term. If you have found this article helpful do share this article with your loved ones.

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