Are you hunting high and low for the best Indian stocks to buy for long term investment? But picking a bunch of quality stocks that will deliver better returns, in the long run, require consistent effort to find quality businesses that are trading than their underlying values.
4 Points to consider before picking the best Indian stocks to buy for long term investment
Before jumping into top stocks to buy for long term in India here are the few questions that you may ask yourself before investing in the stock market.
Have you bought an insurance policy? The first rule of investing is that you should buy a term insurance plan and health insurance plan to tackle any circumstances. You should buy a term insurance policy to secure the finance of your family. Additionally, buy a health insurance policy to cover the expenses on medical when you or your family member is admitted to the hospital.
Have you created an emergency fund? Do remember before investing you should create an emergency fund that covers all of your household expenses, insurance premiums, even the mobile recharge for the 6 years. This will ensure that your investment remains untouched when you are run out of cash.
Have you prepared an Asset Allocation Strategy? Do remember don’t put all of your eggs in one basket. Allocate your investment across different sectors namely, Debt securities, Bonds, Equity, Gold, etc. But what percentage should I invest in equities? As a rule of thumb, you should invest in equity according to the calculation which is 100 – Your current age.
Do you follow the investment advice of your relatives? Don’t invest in stocks since your cousin, or friend, or relatives have invested in it when you don’t know their time horizon, risk appetite, and investment objective. You should invest in those after proper fundamental and technical analysis. When you invest in stocks after proper research you should know the difference between Reliance Industries and Reliance Communications.
How to pick the best stocks to invest in
When you are investing in the stock market to lead a worry-free retirement life, it is crucial to make proper research before you include stock in your portfolio. Here are the 10 parameters you should watch out before starting an investment in any stock.
Parameter #1. Debt to Equity Ratio
This is the key metric that can help you to find quality stocks. To calculate the debt ratio divide the total liabilities that the company has by the total number of outstanding equity. You will get both the figures from the balance sheet of the company.
Invest in those companies that are debt-free or with marginal debt i.e. <0.25.
Parameter #2. Revenue Growth
Is the company delivering double-digit growth during the past 5 years? When the company delivers a double-digit growth you should start investing even with a small amount in that company to witness capital appreciation in the long term.
Parameter #3. Profit Growth
It’s interesting to watch whether the company is able to deliver a 15% growth in profit margin. It is a good sign that the company’s management is quite efficient enough that it has managed to generate profit from revenue by minimizing operating costs.
Parameter #4. Free Cash Flow
Free cash flow is the cash left in the bank account to repay the creditors [if any], pay a dividend to shareholders, for business expansion, etc. By analyzing Free Cash Flow, we will get a clear picture of how the management of the company effectively generates cash from the business operation. Investors will gauge whether the company has enough cash in its bank account to pay dividends and offer share buyback to reward the investors.
Parameter #5. Dividend Payout
When a company is paying dividends to its shareholders especially with an increasing order for a decade, it’s worth investing. If a company doesn’t declare a dividend for consecutive years it doesn’t signal that the company is in jeopardy. It may be the company is paying high-interest debts to achieve a debt-free status. Contrary to that if the company declares dividend havoc then it doesn’t mean that the company doesn’t invest in itself. Take a glance at the Balance Sheet of the company to get a clear picture.
For instance, Berkshire Hathaway hasn’t declared a penny as a dividend for its shareholder since 1967, but has delivered a fruitful return to its shareholders.
Parameter #6. Earnings per Share
Earnings per Share can be calculated by the company’s net profit divided by shares outstanding. The higher the EPS the better the stock is. When Earnings per share of a company increase steadily year on year, the chances are higher that the company may increase dividend payout to its shareholders over time.
By analyzing the earnings per share we can find if the stock price is undervalued or overvalued. Earnings per share help an investor to not only find the current financial health of the company but also track the past performance. As an intelligent investor, you should invest in those companies that have a track record of steady growth of Earnings per Share for the past 10 years.
Parameter #7. Return on Equity
Return on equity can be calculated by dividing Net income by shareholders’ equity.
Pick a stock that has delivered 20% ROE since the past 5 years. When a company has a high Return on Equity, it can be assumed that the company’s management quite efficiently manages to generate income from the shareholders’ capital.
Parameter #8. Price to Earnings Ratio
The Price to Earnings ratio reveals what an investor is willing to pay for a dollar earnings. By analyzing the P/E Ratio you will get a clear idea of whether the company is undervalued or overvalued.
Many retail investors aren’t willing to investing in those companies that have a higher P/E ratio. But it is not true that the company is not able to deliver better returns solely because it has a high P/E. Different industries have different P/E. Start hunting for companies that are trading at lower P/E levels in comparison to those industries.
Parameter #9. Price to Book Ratio
It is quite handy to gauge whether a stock is undervalued or overvalued price to book ratio. If the book value of a company is considerably higher then it’s a clear signal that the stock is overvalued. On the contrary, if the stock’s price to book ratio is considerably lower then the stock is undervalued.
But how can you gauge whether the stock is overvalued or undervalued? Well, the price to book ratio may be different across various sectors. So, as a smart investor, you should calculate the price to book ratio of various companies in the same sector. One general accepted theory is that when the price to book ratio is lower than one, it is considered undervalued.
Parameter #10. Beta
To determine the risk profile of a stock, Beta is one of the key metrics to find how much the stock is volatile with respect to the overall market. When the Beta of a stock is more than one then the stock is more volatile than the overall market. Contrary to that when the Beta of the stock is less than one then the stock is considered to be less volatile than the broad market. If the beta of the stock is 1.5 then the stock is 50% more volatile than the market. When the beta of a stock is 1.5, the stock is able to deliver a 150% return when the market’s return is 100%.
15 Best Indian Stocks to Buy for Long Term Investment
To create wealth you should stay invested for the long run. The stock market is a Voting machine in the short run, but in the long-run stock market is a weighing machine. Further to diminish the risk, don’t invest in one particular stock. Start investing across various sectors. Invest in those sectors that you have a clear understanding of unless you can’t gauge the risk. Stay invested in fundamentally strong companies even when they correct 50% during the bear market. Here you will find the 15 best shares to invest in India for the long term.
APL Apollo Tubes
APL Apollo Tubes was incorporated in the year 1986. It operates in the Metals sector. APL Apollo Tubes has a diversified product portfolio including Pre-Galvanized Tubes, MS black pipes, Galvanized Tubes, and steel pipes that are mainly used for telecom towers, oil and gas transportation, pedestrian bridges and to build malls, offices, metro, etc. The company operates across 20 countries around the world. Even if Apollo Tubes is the largest structural steel tube producer in India, APL Apollo has a strong presence in SAARC countries.
Let’s take a glance at the fundamentals of APL Apollo Tubes,
- Debt to Equity Ratio – 0.50
- Revenue Growth – 20%
- Profit Growth – 32%
- Dividend Yield – Nil
- Earnings per Share – ₹96.28
- Return on Equity – 21%
- P/E Ratio – 40.18
- P/B Ratio – 6.63
- Beta –0.74
Kotak Mahindra Bank
Kotak Mahindra Bank was incorporated in the year 1985. It is a Large Cap company operating in the Banking and Financials sector. Kotak Mahindra offers banking facilities to over millions of people with the help of a wide banking network of about 1400+ branches and 2000+ ATMs across 600+ locations in India. Kotak Mahindra Bank’s key Products/Revenue Segments include Banking Services, Life Insurance, Demat Accounts, Credit cards, etc. Kotak Mahindra Bank has a diversified business model including services, Home Loan, Vehicle Loan, Insurance Products, Asset management, etc.
Let’s take a glance at the fundamentals of Kotak Mahindra Bank,
- Revenue Growth – 20%
- Profit Growth – 23%
- Dividend Yield – Nil
- Earnings per Share – ₹45.75
- Return on Equity – 14%
- P/E Ratio – 39.79
- P/B Ratio – 5.23
- Beta – 1.20
Berger Paints
Berger Paints was incorporated in the year 1923. Berger Paints is a large-cap company that is operating in the Paints and Pigments sector in India. The company has business not only in India but also across the world Russia, Sweden, Poland, Nepal, Japan, and Bangladesh. Berger paints have established a strong presence, not in home paints but also in industrial paints. Many a customer prefers Berger paints when it comes to repaint the home. There is a huge untapped market for Berger Paints since a few percentages of homeowner paints their houses.
Additionally, the Government of India is focusing on developing more tier 2 and tier 3 cities since according to the latest estimates, by 2050 the urban population will be tolled to a whopping 800+ million. It means the demand for paints is steadily growing and thus making it a wise investment.
Let’s take a glance at the fundamentals of Berger Paints,
- Debt to Equity Ratio – 0.20
- Revenue Growth – 9%
- Profit Growth – 20%
- Dividend Yield – 0.33
- Earnings per Share – ₹45.75
- Return on Equity –23%
- P/E Ratio – 124.96
- P/B Ratio – 24.48
- Beta – 1.20
Hindustan Oil Exploration Company
Hindustan Oil Exploration Company Ltd (HOEC) was incorporated in 1996. It operates in the Oil and Gas Sector. The company is engaged in crude oil and natural gas exploration.
Let’s take a glance at the fundamentals of Hindustan Oil Exploration Company,
- Debt to Equity – 0.07
- Revenue Growth – 28%
- Profit Growth – 31%
- Dividend Yield – Nil
- Earnings per Share – ₹6.71
- Return on Equity – 15%
- P/E Ratio – 12.94
- P/B Ratio – 1.69
- Beta – (–0.20)
VST Industries
VST Industries was incorporated in 1930. The company deals in Tobacco Sector. The company is engaged in the manufacturing and distribution of cigarettes. Charminar, Editions, Total, Gold, and Monuments are famous brands of VST industries. VST Industries is a debt-free company. The company has improved not only its Book Value per share but also Return on Equity. It’s interesting to note, FIIs/FPIs steadily increase their stake.
Let’s take a glance at the fundamentals of VST Industries,
- Debt to Equity – 0.07
- Revenue Growth – 10%
- Profit Growth – 26%
- Dividend Yield – 2.69
- Earnings per Share – ₹204.86
- Return on Equity – 37%
- P/E Ratio – 18.72
- P/B Ratio – 7.52
- Beta – (–0.17)
VIP Industries
VIP Industries was incorporated in 1968. The company operates in Plastic Sector. The company is engaged in the manufacturing and distribution of Duffle bags, Backpacks, Suitcases, and Office bags. VIP Industries has 8000+ retail outlets across India. This is not only the largest brand in India and Asia but also 2nd largest luggage brand in the world. VIP, Carlton, Aristocrat, Skybags, ALFA, etc. are the famous brands of VIP Industries.
Let’s take a glance at the fundamentals of VIP Industries,
- Debt to Equity Ratio – 0.05
- Revenue Growth – 11%
- Profit Growth – 28%
- Dividend Yield – 0.88
- Earnings per Share – (– ₹3.04)
- Return on Equity – 25%
- P/E Ratio – (–119.93)
- P/B Ratio – 8.45
- Beta – 0.07
V-Guard Industries
V-Guard Industries was incorporated in 1996. The company operates in the Consumer Durables Sector. The company is engaged in the manufacturing and distribution of Electrical and Electronics products namely Stabilizers, UPS, Pump, Geysers, Electric Fan, Air Coolers, Kitchen appliances, etc.
Let’s take a glance at the fundamentals of V–Guard Industries,
- Debt to Equity Ratio – 0.01
- Revenue Growth – 7%
- Profit Growth – 21%
- Dividend Yield – 0.47
- Earnings per Share – ₹3.06
- Return on Equity – 22%
- P/E Ratio – 62.19
- P/B Ratio – 8.15
- Beta – 0.70
United Drilling Tools
United Drilling Tools was incorporated in the year 1985. It deals in the Engineering-Industrial Equipment sector. The company has not only witnessed satisfactory annual Earnings per share growth but also efficiently has managed its assets to generate profits. The company has improved ROE and ROCE consistently since the past 2 years. Additionally the FII’s and FPI’s increase their stake consistently.
Let’s take a glance at the fundamentals of United Drilling Tools,
- Debt to Equity Ratio – Nil
- Revenue Growth – 12%
- Profit Growth – 29%
- Dividend Yield – 1.95
- Earnings per Share – ₹18.80
- Return on Equity – 22%
- P/E Ratio – 14.22
- P/B Ratio – 3.31
Petronet LNG
Petronet LNG was incorporated in the year 1998. The company operates in the Gas & Petroleum sector. The Petronet LNG was established as a joint venture by the Government of India’s subsidiary companies namely GAIL (India) Ltd, Oil & Natural Gas Corporation Ltd (ONGC), Indian Oil Corporation Ltd (IOCL), and Bharat Petroleum Corporation Ltd (BPCL). The company is engaged to import liquefied natural gas (LNG) from countries namely Australia, Oman, and Qatar. Petronet LNG has run its operation from its two terminals that are located in Dahej, Gujrat, and Kochi, Kerala.
Let’s take a glance at the fundamentals of Petronet LNG,
- Debt to Equity Ratio – 0.01
- Revenue Growth – 13%
- Profit Growth – 17%
- Dividend Yield – 0.47
- Earnings per Share – ₹16.48
- Return on Equity – 24%
- P/E Ratio – 16.21
- P/B Ratio – 3.60
- Beta – 0.30
Gujarat State Petronet
Gujarat State Petronet was incorporated in the year 1998. It serves in the Gas & Petroleum sector. The company’s management is quite an efficient one, since the net cash flow from operations is increasing year on year. The company’s RoCE and ROA are improving since the past 2 years. Though the company has a marginal debt, the debt is reducing rapidly to declare itself a debt-free company.
Let’s take a glance at the fundamentals of Gujrat State Petronet,
- Debt to Equity Ratio – 0.49
- Revenue Growth – 63%
- Profit Growth – 36%
- Dividend Yield – 0.90
- Earnings per Share – ₹25.18
- Return on Equity – 30%
- P/E Ratio – 8.82
- P/B Ratio – 1.96
- Beta – 0.68
TVS Motor Company
TVS Motor Company was incorporated in the year of 1992. It deals in Auto Sector. TVS Motor Company has diversified its products range from 2-wheeler vehicle to 4-wheeler vehicle. TVS has a diversified product portfolio including Scooters, Mopeds, Motorcycles, Electric Vehicle, and 3-wheeler passenger vehicles. Apache RTR, Jupitar, XL 100, Star City, are some of the well-known brands of TVS Motors. The TVS Motor has set up vehicle manufacturing plants not only in India but also in Indonesia to cope with the huge demand, since there are over 35 million TVS Motors vehicles are running on the road.
India has witnessed rapid growth in the 2-wheeler segment and hopefully will continue its growth. To avoid public transport a 2-wheeler vehicle is now essential for a larger section of people owing to the corona pandemic. Since TVS Motors has a vast distribution network and has a range of vehicles in various price ranges, people have the choice to take one according to their budget. This diversified portfolio of vehicles will help TVS motor to elevate earnings in the near future.
Let’s take a glance at the fundamentals of TVS Motor Company,
- Debt to Equity Ratio – 2.74
- Revenue Growth – 13%
- Profit Growth – 18%
- Dividend Yield – 0.69
- Earnings per Share – ₹4.74
- Return on Equity – 25%
- P/E Ratio – 107.76
- P/B Ratio – 6.74
- Beta – 2.73
UPL
UPL was incorporated in the year 1985. It works in the field of Agro Chemicals Sector. UPL is the largest manufacturer of agrochemicals in India. UPL is the only Indian company that is ranked amongst the top 5 agrochemicals companies in the world.
UPL has diversified its products range among insecticides, fungicides, rodenticides, etc. The company has a strong distribution network and has 20+ manufacturing units. UPL has a wide customer base in 123 countries.
Let’s take a glance at the fundamentals of UPL,
- Debt to Equity Ratio – 1.76
- Revenue Growth – 24%
- Profit Growth – 17%
- Dividend Yield – 1.26
- Earnings per Share – ₹30.52
- Return on Equity – 21%
- P/E Ratio – 15.59
- P/B Ratio – 1.61
- Beta – 2.64
Cholamandalam Investment & Finance Company
Cholamandalam Investment was incorporated in the year 1978. It serves in the Non-banking Financial Sector. Cholamandalam Investment offers a wide variety of lending facilities to buy,
- Commercial vehicles including Trucks, Buses, SUVs, Loaders, etc.
- Construction vehicles including Bulldozers, Dump Trucks, Front Loaders, etc.
- Home and remodeling of the home.
Additionally, Cholamandalam Finance offers various investment solutions namely Demat accounts, mutual funds, bonds, ETFs, etc. Apart from that, they offer SME loans and Agricultural loans.
Let’s take a glance at the fundamentals of Cholamandalam Finance,
- Debt to Equity Ratio – 6.71
- Revenue Growth – 19%
- Profit Growth – 19%
- Dividend Yield – 0.47
- Earnings per Share – ₹15.83
- Return on Equity – 18%
- P/E Ratio – 23.03
- P/B Ratio – 3.64
- Beta – 1.54
Shriram Transport Finance Company
Shriram Transport Finance Company was established in the year 1979. It operates in the Non-Banking Finance Sector. The company is engaged in offering a range of financing solutions to buy Trucks, construction vehicles and equipment, and new passenger and commercial vehicles. The company has spread its access to more than 700+ offices and has over 70000+ agents across the country.
Let’s take a glance at the fundamentals of Shriram Transport Finance Company,
- Debt to Equity Ratio – 5.20
- Revenue Growth – 13%
- Profit Growth – 20%
- Dividend Yield – 0.47
- Earnings per Share – ₹83.57
- Return on Equity – 15%
- P/E Ratio – 12.73
- P/B Ratio – 1.33
- Beta – 1.86
Manappuram Finance
Manappuram Finance was incorporated in the year 1992. It works in Banking and Financial Sector. Manappuram Finance offers a wide range of loan products namely gold loans, loans against property, SME loans, and commercial vehicle loans. Additionally, Manappuram Finance not only offers affordable home loans but also insurance products.
Let’s take a glance at the fundamentals of Manappuram Finance,
- Debt to Equity Ratio – 3.82
- Revenue Growth – 22%
- Profit Growth – 40%
- Dividend Yield – 1.57
- Earnings per Share – ₹1.53
- Return on Equity – 23%
- P/E Ratio – 9.45
- P/B Ratio – 2.55
- Beta – 2.71
Final Thoughts
An investor’s primary aim should be finding a fundamentally strong stock that is undervalued. After proper analysis when you find quality stocks that are available at an attractive valuation do remember the following points.
Are you investing with borrowed money in the stock market? For God’s sake don’t do that. Since you don’t know whether a sharp correction is waiting in the upcoming few months, don’t invest with the borrowed money. Instead, start investing with a meagre capital of 1000. Do remember, invest that amount of money that you don’t need for the upcoming 10 years, as the stock market will deliver better returns in the long run.
Do you understand the business in which you are going to invest? There are 5000+ stocks that are listed on BSE and NSE, but in which sector you are going to invest matters. According to Warren Buffet, find simple businesses that you have a clear understanding of like how the company works and generates revenue. Suppose you want to invest in the petroleum sector, but you neither know how the oil prices affect the company’s earnings nor what will be the effect of management’s decision in the near future to tackle a condition.
Whether the company has a sustainable competitive advantage over its peer competitors? It’s interesting to find the companies that have a competitive moat over the peer companies. When a company has a sustainable competitive advantage, it is clear that the management of the company has the vision and performs accordingly to stay clear from peer competition.
Do you know how to diversify your portfolio? It’s important to diversify your portfolio to minimize the risk. Don’t stay invested only in Banking and Technology Sector stocks rather diversify your portfolio across various sectors namely Consumer Durables, Housing, NBFCs, Auto, FMCG, Paints, and pigments, etc. If you have a portfolio of 10 stocks make sure you have diversified your portfolio across 5 sectors.
- Read also: Top 7 Best Penny Stocks to Buy Right Now in India
- Read also: Top Stock Recommendations – The Economic Times
How Stock Bounty can help you to find the best stocks to buy for long term investment in India?
Here in Stock Bounty, you will find the best stocks to buy in India after we have analyzed a stock with 20 parameters. Each stock is selected after running a proper fundamental, technical, and qualitative analysis that will yield better returns in the long run. We will offer a diversified portfolio of stocks to minimize the risk profile.
Hope this article helps you to find the best stocks to invest in India for long term. Still, have a doubt about which stocks to buy in India for long term? Make a comment and I will assist you to find the best stocks to buy in India for long term.