Best Stocks for Long term Investment in India. In this post, I am going to describe three great stocks which anyone can keep in your portfolio for the long term. I have selected these stocks from different sectors in order to diversify the portfolio.
The stock selection is based on the fundamental analysis. If you want to read more about how I select stock for long term investment, you can read it here: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?
Best Stocks for Long term Investment in India:
Indian Tobacco Company (ITC) is one of the biggest conglomerate company in India. It has a diversified business which includes five segments: Fast-Moving Consumer Goods (FMCG), Hotels, Paperboards & Packaging, Agri-Business & Information Technology.
ITC was formed in August 1910 under the name of Imperial Tobacco Company of India Limited. Currently, it has over 25,000 employees. Now, let us discuss few of the leading products of ITC:
ITC Ltd sells 81 percent of the cigarettes in India. ITC’s major cigarette brands include Wills Navy Cut, Gold Flake Kings, Gold Flake Premium lights, Gold Flake Super Star, Insignia, India Kings, Classic (Verve, Menthol, Menthol Rush, Regular, Citric Twist, Ice Burst, Mild & Ultra Mild), 555, Silk Cut, Scissors, Capstan, Berkeley, Bristol, Lucky Strike, Players, Flake and Duke & Royal.
Many of the FMCG sector companies are facing competition with Baba Ramdeo’s Patanjali. But, I am damn sure that Patanjali will never enter the cigarette’s sector as by doing so they will lose their core values. Hence, ITC will continue to have a monopoly in this sector of the market.
- Foods: Aashirvaad, Mint-o, gum-o, B natural, Sunfeast, Candyman, Bingo! and Yippee!. ITC is present across 6 categories in the Foods business namely Staples, Snack Foods, Ready-To-Eat Foods, Juices, Dairy Product and Confectionery.
- Lifestyle apparel: ITC sells its products under the Wills Lifestyle and John Players brands.
- Personal care products include perfumes, haircare and skincare categories. Major brands are Fiama Di Wills, Vivel, Essenza Di Wills, Superia and Engage.
- Stationery: Brands include Classmate, PaperKraft and Colour Crew.
- Safety Matches and Agarbattis: Ship i Kno and Aim brands of safety matches and the Mangaldeep brand of agarbattis (Incense Sticks).
- Hotels: ITC’s Hotels division (under brands including WelcomHotel) is India’s second largest hotel chain with over 90 hotels throughout India.
- Paperboard: Products such as specialty paper, graphics, and other paper are sold under the ITC brand by the ITC Paperboards and Specialty Papers Division like Classmate product of ITC well known for there quality.
- Packaging and Printing: ITC’s Packaging and Printing division operates manufacturing facilities at Haridwar and Chennai and services domestic and export markets.
- Information Technology: ITC operates through its fully owned subsidiary ITC Infotech India Limited, which is a SEI CMM Level 5 company.
Source: ITC- Wikipedia
Fig: ITC Gross Revenue (Source: ITC Annual Report 2017)
Now that we have studied about the product and services of ITC, let’s move forward to find out the company’s financials to understand how healthy the company it.
Financial Study of ITC:
ITC is a large-cap company with market capitalization of over 410,000 crores. It is currently trading at a PE of 39 against the industry PE of 40.5. The return on equity (ROE) for the last 3 is above 25%.
Let’s first look at the annual results of ITC.
The annual results are showing a good yearly growth of ITC.
From the report, we can notice that the sales, operating profit, and the net profit of ITC are consistently increasing for the last 10 years. Moreover, the net profit has almost doubled in the last 5 years. ITC has been maintaining a healthy average dividend payout of 57.86% for last 3 years. Although dividends are not criteria to choose best stocks for long-term investment in India, however, a good consistent dividend is a sign of a healthy company.
Further, in the latest press release, the management of ITC has told that ITC will continue to give similar results in the future. The sales of ITC are expected to double from the current by the year 2020.
Now, let’s study the balance sheet of ITC to find out further.
Here, we can notice that the debt of ITC is very small compared to its total assets. Therefore, ITC can be considered as a virtually debt-free company.
Overall, studying the company minutely, it can be concluded that ITC is fundamentally very strong and one of the best Stocks for Long-term Investment in India. You should keep ITC in your portfolio for at least the next 3-4 years to get a good consistent return.
Quick Note: If you are new to stock analysis, here’s a video that can help you understand how to perform fundamental analysis of stocks. I hope this video is useful to you.
2. HDFC BANK:
HDFC Bank is India’s leading banking and financial service company. It is India’s largest private sector lender by assets. It has 84,325 employees and has a presence in Bahrain, Hong Kong, and Dubai.
HDFC Bank is the largest bank in India by market capitalization and was ranked 69th in 2016 BrandZ Top 100 Most Valuable Global Brands. HDFC Bank provides a number of products and services which includes Wholesale banking, Retail banking, Treasury, Auto (car) Loans, Two Wheeler Loans, Personal Loans, Loan Against Property and Credit Cards.
The total revenue collected by HDFC bank in 2016 was around Rs 74,373 crores. The net profit in the same financial year was Rs 12,817 crores.
Source: HDFC Bank – Wikipedia
Now, let’s look at the financials of the company to check its fundamentals.
A financial study of HDFC Bank:
HDFC bank is a large-cap company with a market capitalization of Rs 430,900 Crores. It is currently trading at a PE of 29 against the Industry PE of 26. The return on equity (ROE) for the last three years is averaged 19.5%.
From the annual results of HDFC Bank, we can notice that the sales and profit are consistently increasing over the last decade.
The net profit has more than doubled in the last five years.
Note: when you study the Earnings per share (EPS) of HDFC bank, you will notice that EPS fell in 2012 (compared to 2011). However, in actual, this is because of the stock split. HDFC Bank split its share in the ratio 10:2 in July 2011. While doing the fundamental analysis of a stock, you should give extra care to stock splits and bonus issues.
Now, let’s check the balance sheet of HDFC Bank.
Here we observe that the compounded sales growth of HDFC bank is around 24% for the 10-year average and around 19% for the last 3 years. In addition, the average compounded profit growth for the last three years is 19.73%.
Further, while investing Stocks for Long-term Investment in India in the banking sector, you should always check the gross non-performing asset (NPA) percentage. As a thumb rule, companies with gross NPA less than 2% is considered worth investigating. For HDFC Bank, the gross NPA is around 1.05%, which is good.
Overall, HDFC has shown amazing results in the past and the company’s future also looks very healthy. This makes HDFC a good stock for long term investment in India in the banking sector.
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3. ASIAN PAINTS:
The paint industry is an evergreen industry and you should always keep a good stock from this sector in your portfolio.
Whatever may be the economy of the country, new houses will be consistently made, and new companies will regularly open. And in all these, a paint company will be required.
Asian Paints is one of the largest Indian paint company and manufacturer. Since its foundation in 1942, Asian paint has come a long way to become India’s leading and Asia’s fourth-largest paint company, with a turnover of Rs 170.85 billion. It operates in 19 countries and has 26 paint manufacturing facilities in the world, servicing consumers in over 65 countries.
As of 2015, it has the largest market share with 54.1% in the Indian paint industry. Asian Paints is the holding company of Berger International.
Asian Paints is engaged in the business of manufacturing, selling and distribution of paints, coatings, products related to home decor, bath fittings and providing of related services.
Source: Asian Paints Ltd – Wikipedia
Now, let us look at the financials of the Asian Paints.
The financial study of Asian Paints:
Asian paints is a large-cap company with a market capitalization of Rs 107,175 crores. It is currently trading at a PE of 59 compared to the industry PE of 55. The return on equity (ROE) for the last three years is averaged to be 29%.
Here are the annual results of Asian Paints.
Here, we can notice a positive trend in the financial growth of Asian Paints. The sales and profits are consistently increasing year-by-year. The net profit of Asian paints has doubled itself in the last 5 years and has become more than 6 times in the last 10 years.
Here, we can also notice that Asian paint is a virtually debt-free company. The total debt of Asian paints is around Rs 37.21 crores against the net worth of Rs 6,950 crores.
Overall, Asian paints is a fundamentally strong company with a healthy growth rate and should be considered worth investing as one of the great stocks for long-term investment in India.
All the three stocks explained in this post- ITC, HDFC Bank, and Asian paints are large-cap companies. They have almost a monopoly in the market with a huge moat. The management of these companies is transparent and effective. In short, these three stocks are few among the best stocks for long term investment in India.
I hope this post “Best Stocks for Long term Investment in India” is useful to the readers. Do comment below what are your opinions about these stocks. Happy Investing.
Quick Note: The stocks discussed in this post are for educational purpose only and focuses to teach the steps and strategies to evaluate stocks. It should not be treated as an advisory or recommendation.
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Disclaimer: This post is a personal research and opinion of the author and should not be taken as an advisory. Please study the stock carefully before investing or take the help of your financial advisor.
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