How To Select Best Stocks For Investment In India - Ashika Group Blog (2024)

Many investors, while having a good strategy for their investments, tend to miss out on the prior process of picking the right stocks. With the enormous number of stocks listed on stock indices, it can be challenging to narrow down on a certain list of stocks, let alone pick the right stock to invest in. Stock market trading India has been growing over the past years. However, more than 90% of the people who invest their money in the stock market face losses due to not picking the right stock. This is due to the primary reason of not researching thoroughly to pick the right stocks. Most often, these investors tend to follow the suggestions provided on online portals, friends, families, and other sources.

While these sources provided a certain level of information, they may not always hold true. So, it is best to perform your own research and weigh out the pros and cons before choosing to invest in a certain stock. In this article, we will have a look at how you can pick the right stocks and invest in them.

5 Steps to Pick the Right Stocks

To understand the process of choosing the right stocks to invest in, it is fundamental that you understand a few steps that involve understanding the different aspects of a company. Here are the 5 main steps to picking the right stock.

1. Fundamentals of the Company

First of all, it is key to understand the company’s fundamentals to understand if the company is profitable, consistent, has a good inflow of revenue, and other parameters. You can begin by understanding the different products and services that the company provides along with its competitors and its future prospects. Some of the key aspects that you can check for while understanding the fundamentals of the company are:

  • Prince to earnings ratio
  • Debt to equity ratio
  • Earnings per share
  • Return on equity
  • Current ratio
  • Price to book ratio
  • Dividend
  • Price to sales ratio

Once you understand these aspects about a certain company, you would be in a place to make an informed decision when it comes to picking a stock.

2. Understanding of the Products and Services

The next step is to gain an understanding of the products and services that are offered by the company. You can start by understanding the business model of the company. It is key for the company to have a solid business model that also has a proof of concept. By gaining an understanding of the business model and the products or services that are offered by the company, you would increase your understanding of the company and be in a position to gauge your decision about investing in the company better.

3. Future Scope of the Products and Services

Now that you have gained an understanding of the products and services offered by the company, it is important to understand if these products or services will stay relevant in the future. This can help you gain an idea about how your future revenue would be.

4. Outstanding Debt

Big debts in a company or business can be a red flag. It is also a sign of financial instability that may lead to poor returns on your investment. So, understand the amount of debt that the company has before going ahead with investing in their company. Before you select a certain stock, make sure that you go through their balance sheet and check the liabilities for any debt that the company has. In essence, it can be beneficial to avoid investing in companies that have huge outstanding debt. Further, also look for the non-performing assets of the company. Again, it can be beneficial to avoid investing in companies that have huge non-performing assets.

5. Management of the Company

Another key aspect is to check for the management of the company. This is very crucial as management is considered to be a key aspect of the company as it can make or break their business. Make sure to understand the strategy and goals of the company as it can provide you with an understanding of the potential future of the company. Moreover, check for the length of tenure of the management team as well. Companies that are stable typically have a longer management tenure compared to unstable ones. The promoter’s buying and share buybacks are also important aspects to check for while picking a stock.

In Conclusion

Choosing the right stock for stock market trading India can be challenging given the plethora of options that are available in the market. It is important to conduct primary and preliminary research before picking a stock as it can determine the potential returns you can receive after investing in the company. By checking for certain aspects such as the fundamentals, financials, outstanding debt, management, and the future scope of the company, you can make an informed decision about picking the right stock.

Tagged Stock Market Trading India

How To Select Best Stocks For Investment In India - Ashika Group Blog (2024)

FAQs

How To Select Best Stocks For Investment In India - Ashika Group Blog? ›

Closely study the financial reports of the company. Find the company's competitors/rivals and study them. Check the company's debt and compare with rivals. Analyse the company's future prospects.

How to analyse best stocks in India? ›

Closely study the financial reports of the company. Find the company's competitors/rivals and study them. Check the company's debt and compare with rivals. Analyse the company's future prospects.

What is the formula for picking stocks? ›

P/E Ratio – The P/E ratio is a calculation that evaluates a stocks relative performance and value. It is computed by dividing the stock's price by the company's per share earnings for the most recent four quarters.

How to check if a stock is good? ›

Metrics like earnings growth, price-to-earnings (P/E) ratio, and profit margin can potentially help isolate possible danger signs for a stock. Traders often compare a stock to its sector and see how it's doing compared to other stocks.

How to know what stocks to buy for beginners in India? ›

Steady performance is often a good sign for beginners. Companies that regularly pay dividends can be a good option, as they offer additional income. Understand your risk appetite. If you prefer less risk, choose stocks from stable sectors.

What is the 10x rule Buffett? ›

According to this rule, if you pay 10x EBT for a business that remains stagnant, you would be essentially buying a 10% yielding bond because bond yields are quoted in pre-tax earnings.

How to shortlist stocks for investment? ›

There are screeners based on P/E ratio, past price performance, P/BV for select industries, dividend yield etc. These ratios help you to shortlist companies that have a valuation comfort for the investor. You don't just need a stock that is available at a price lower than the intrinsic value.

Who is No 1 in Indian stock market? ›

Reliance Industries, a conglomerate holding company, is the largest company in India by market cap. It operates in various sectors, including energy, petrochemicals, textiles, natural resources, retail, and telecommunications.

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