Companies with Highest Share Price in India

#12 Companies with Highest Share Price in India (Updated)

#12 companies with highest share price in India (Updated- October 2019):

Hi Investors. In this post, we are going to discuss the 12 companies which have the highest share price in India.

Note: Please study the companies carefully if you want to invest in any of the stocks mentioned in the list here. A high stock price doesn’t guarantee a fundamentally strong company or a good investment. Let’s get started.

#12 Companies with Highest Share Price in India

1. MRF (Rs 62,896)

mrf-tyres Companies with Highest Share Price in India

Market Capitalisation = Rs 26,628 Cr

Madras Rubber Factory (MRF) is a Tyre manufacturer that produces a wide range of tyres. It specializes in Car & bike tyres, trucks/buses tires etc.

 MRF has the highest share price in India among all the listed companies on BSE/NSE.

The all-time high share price of MRF is Rs 81,426. The stock is currently trading at a standalone PE of 24.14.

MRF has never split its share and has a face value of Rs 1o. Noticeably, this company was trading at a price of Rs 10,000, in November 2012.

2. Honeywell Automation (Rs 28,564)

honeywell

Market Capitalisation = Rs 25,250 Cr

Honeywell is a leader in providing integrated automation and software solutions. It has a wide product portfolio in environmental and combustion controls, and sensing and control, etc.

This stock has given a return of over +440% in the last 5 years. It is currently trading at a PE of 66.24.

3. Page Industries (Rs 20,816)

page industries

Market Capitalisation = Rs 23,210 Cr

One of the famous company under Page Industries is Jockey (Underwear and inner wears company). Page industries is in readymade apparels (garment) industries. It has turned out to be a multi-bagger stock in the last couple of years and has given a return of over +135% in last 5 years.

Page industries is currently trading at a PE of 61.05.

4. 3M India (Rs 20,610)

3m india

Market Capitalisation = Rs 23,227 Cr

3M India has a diversified portfolio of products in dental cement, health care, cleaning, etc. This stock is currently trading at a PE of 75.35.

Also read: How to Invest in Share Market? A Beginner’s guide

5. Eicher Motors (Rs 19,220)

eicher motors

Market Capitalisation = Rs 52,452 Cr

The parent company of Royal Enfield (Bullet bikes) and Eicher trucks. This is in the automobile sector.

This stock has given a negative return of -35% in the last two years since October 2017.

 Eicher motor was trading at a price of Rs 2,500 in November 2012 and a high of Rs 31,600 in April 2018.  The current PE of Eicher Motors is 25.24.

Also read: 8 Best Discount Brokers in India – Stockbrokers List 2019

6. Shree Cements (Rs 18,373)

shree cements

Market Capitalisation = Rs 64,787 Cr

Shree Cement is an Indian cement manufacturer headquartered in Kolkata. It is the biggest cement maker in northern India. 

Shree cements is currently trading at a PE of 54.85. (52-week high- Rs 22,399)

7. Nestle India (Rs 14,351)

Nestle Products

Market Capitalisation = Rs 138,377 Cr

Nestle India is in the food processing industry with a wide variety of products like Maggi, Kit-Kat, Nescafe, Every day, etc.

 This stock is currently trading at a PE of 81.93.

8. Bosch (Rs 14,128)

bosch

Market Capitalisation = Rs 41,671 Cr

Bosch ranks eighth in the list of companies with highest share price in India. It is a part of the German multinational company Robert Bosch (or just Bosch), headquartered in Germany.

Bosch belongs to the automobile ancillaries industry and currently trading at a PE of 27.73 (52-week high- Rs 20,500).

9. Bombay Oxygen (Rs 13,247)

Market Capitalisation = Rs 198 Cr

This is one of the lesser-known companies on the list of companies with highest share price in India. Incorporated in 1960, Bombay Oxygen is an Industrial gases company.

The stock is currently trading at a standalone PE of 25.28 with a 52-weeks high price of Rs 26,995 in October 2018.

Also read: How To Invest Rs 10,000 In India for High Returns?

10. Procter & Gamble (Rs 11,582)

procter and gamble

Market Capitalisation = Rs 37,598 Cr

P & G is in the personal care industry with products in hygiene and health care. Few famous products of Procter & Gamble group are Ariel, Duracell, Gillette, Head & Shoulder, etc.

This stock is currently trading at a PE of 89.71.

Quick Tip: If you are new to the share market, you’ll need to open your demat account to start investing/trading. We’ll highly recommend opening an account with Zerodha, No 1 stockbroker in India. Here’s a detailed post on how to open Zerodha account step-by-step.

11. Abbott India (Rs 10,949)

abbott india share

Market Capitalisation = Rs 23,267 Cr

Headquartered in Mumbai, Abbott India Limited, a publicly listed company and a subsidiary of Abbott Laboratories, takes pride in offering high-quality trusted medicines in multiple therapeutic categories such as women’s health, gastroenterology, cardiology, metabolic disorders, and primary care.

It is currently trading at a PE of 47.99.

12. Tasty Bite Eatables (Rs 10,104)

tasty bytes

Market Capitalisation = Rs 2,592 Cr

This company operates in the food processing industry with products like tasty bite rice, noodles, entrees, etc. This stock is currently trading at a PE of 81.05.

That’s all for this post on ‘#12 companies with the highest share price in India’. Most of the companies on this list are trading at a high PE. If you want to buy any one of them, then please study the company carefully. Past performance does not guarantee future returns.

Disclaimer: The list of 12 Companies with Highest Share Price in India is till date October 2019. The stock market is dynamic and the stock prices will change in the future, which may change the list or the order of the companies listed here.

Further, do comment below which other stocks can find a place in this list by next year (October 2020) and which ones will be thrown out of the list, according to you? Cheers!

What is derivative trading

What is Derivative Trading? Futures & Options Explained

Hello readers. One of the most frequently asked questions by Trade Brains’ readers is what is futures and options trading. In this article, we are going to cover this topic and discuss what is derivative trading along with explaining futures and options. Let’s get started.

What are Derivatives?

A derivative is a device whose monetary value is extracted from the value of one or more primary variables called bases. Here, the bases mainly indicate underlying assets, interest rate or indexes. These underlying assets further comprise equity, foreign exchange, commodity, or any other asset.

As the value of these underlying assets keeps fluctuating, these changes in value can help traders to earn profits from derivative trading. The most common types of derivatives are futures, options, forwards and swaps.

This evolution of the market for derivative products like Forwards, Futures, and Options dates back to the compliance of risk hesitant economic advocates to shield themselves against volatilities emerging out of ups and downs in asset prices. In other words, it acts as a hedging apparatus against oscillation in commodity prices.

Post-1970, financial derivatives majorly came under the limelight due to thriving fluctuations in the markets. Ever since they seeped into the picture, these products have gained quite a popularity and have reckoned for about two-thirds of total transactions in derivative products by 1990.

In the class of equity derivatives, Future and Options have acquired more eminence than individual stocks. The trend is especially prominent among institutional investors who are frequent partakers of index-linked derivatives. Financial markets are marked by an escalated amplitude of volatility but with the utilization of derivative products, it is viable to partially or fully shift the price risks by remanding the asset prices.

As equipment of risk management, these generally do not determine the inconstancy in the underlying asset prices. However, by tapping in asset prices, derivative products reduce the influence of fluctuations in asset prices on the profitability and cash flow scenario of risk-afraid investors.

Factors driving the Growth of Derivatives

In the last thirty years, the derivatives market has seen an exemplary advancement. A huge variety of derivative contracts have been introduced at exchanges across the globe. Some of the factors which are surging the cultivation of financial derivatives are:

  1. Elevated synthesis of national financial markets with the global markets.
  2. Considerable development in communication amenities and acute declination in their costs.
  3. Growth of more sophisticated risk management devices, providing economic agents with a variety of choices.

Derivative Products

Derivative contracts have diversified variants. The most basic variants are Forwards, Futures & Options. 

1. Forward Contract :

A forward contract is a customized contract between two individuals, where settlement takes place on a definite date in the future at the current pre-compiled price. Other contract details like delivery date, price, and quantity are negotiated bilaterally by the parties. The forward contracts are generally traded outside the exchanges.

On the expiration date, the contract has to be settled by the delivery of the asset. If the party wishes to counterpole the contract, it has to imperatively go to the same counter-party, which often results in charging higher prices. In certain markets, Forward Contracts have become standardized like in the case of foreign exchanges. Such standardization reduces transaction costs and increases transaction volumes.

For example, let us consider an exporter who expects to receive payment in dollars three months later. He is exposed to the risk of exchange rate fluctuations. Thus, utilizing the currency forward market to sell dollars forward, he can clinch on to a rate today and diminish his uncertainty.

2. Futures Contract:

A futures contract is an alliance between two parties to purchase or sell an asset at a stipulated time in the future at a specific price. Futures contracts are special types of forward contracts that are traded on exchanges. Future Contracts also facilitate the elimination of risk and provide more liquidity to a market participant. The terminology of the Futures Contract consists of Spot Price, Futures Price, Contract Cycle, Expiry Date & Contract Size.

For example, if you buy/sell a crude oil futures contract, you are agreeing to buy/sell a set amount of crude oil at a specific price (the price you place an order at) at some future date. You don’t actually need to take delivery of the crude oil, rather you make or lose money based on whether the contract you bought/sold goes up or down in value relative to where you bought/sold it. You can then close out the trade at any time before it expires to lock in your profit or loss.

3. Options  Contract:

Options are of two types namely, Calls & Puts. Calls give the buyer the authority but not the obligation to purchase a given quantity of the underlying asset, at a given price on or before a given future date. Puts give the buyer the authority, but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date. Unlike, Futures Contract, the purchase of an Option requires up-front payment. 

Also read: What Drives Stock Returns? (Divergence Analysis)

Participants in the Derivative markets

There are four broad categories of participants namely Hedgers, Speculators, Margin Traders, and Arbitrageurs. Let’s discuss each of them now:

1. Hedgers: Traders who aspire to secure themselves from the risk involved price actions generally participate in the derivatives market. They have been called hedgers because they try to hedge the price of their assets by undertaking an exact opposite trade in the derivatives market. 

2. Speculators: Unlike hedgers, Speculators look for opportunities to take on risk in the hope of making returns. These stark contrast in risk figuration and market views sets apart hedgers from speculators.

3. Margin Traders: Dealing with derivative products doesn’t require payment of the total value of the upfront position. Instead,  depositing only a fraction of the total sum does the work and is known as Margin Trading. Margin Trading results in a high leverage factor in derivative trade because, with a small deposit, one is able to keep a large outstanding position.

4. Arbitrageurs: Derivative instruments are valued on the basis of the underlying asset’s value in the spot market. However, there are times when the price level of stock in the cash market is lower or higher in comparison to its price in the derivatives market. Arbitrageurs tap the opportunities and exploit these blemishes and disorganization to their favor.

Arbitrage trade is a low-risk trade, where a parallel deal in securities is done in one market and a corresponding sale is executed in another market. Such a trade is carried out when the same securities are being quoted at different prices in two different markets.

For example, in the cash market, let us consider the price is quoting at Rs. 1000 per share. On the other hand, it is at Rs. 1010 in the futures market. An arbitrageur would purchase 100 shares at Rs. 1000 in the cash market and sell 100 shares at Rs. 1010 per share in the futures market, thereby making a profit of Rs. 10 per share.

Also read: The Stock Market Cycle: 4 Stages That Every Trader Should Know!

Summary: Derivative Trading

A derivative is a device whose monetary value is extracted from the value of one or more primary variables called bases. Here, the bases mainly indicate underlying assets, interest rate or indexes. Further, the asset can be anything from stocks, commodities, currency to interest rates.

The most common types of derivatives are futures, options, forwards and swaps. In derivative trading, the traders take advantage of the fluctuating value of underlying assets to make profits.

list of 10 largest stock exchange's image

10 Largest Stock Exchanges in the World

People who invest in stock must be familiar with the New York Stock Exchange which is top of the list of Largest Stock Exchanges in the world. Before we start this post, let us brief a bit about what the stock exchange is.

A Stock Exchange is an organization that anchor formulated market for dealing in securities, derivatives, commodities, and other financial equipment. It is one of the powerful ingredients of the financial market. Here, buyers and sellers club together to carry out transactions. And, securities are bought and sold out according to clear-cut rules and regulations.

Stock exchange furnishes the required edifice and framework to the brokers and members who deal with asset classes. It also governs the transaction activities to certify free and fair trade. The most engaging aspect is that the Stock exchanges are also deemed as the financial measures of an economy where the industrial development and firmness is mirrored in the index. Here is the list of the ten largest Stock Exchange in the world.

10 Largest Stock Exchanges in the World

1) New York Stock Exchange:

New York Stock Exchange's image

The New York Stock Exchange (NYSE) is first on the list of the largest stock exchange in the world and is a highly esteemed stock exchange in the USA which is situated at 11, Wall Street, New York City. It was established on May 17, 1792, and consists of 2,400 listed companies. It is the world’s largest stock exchange and has a market capitalization of US$ 30.1 trillion.

Back to the back of mergers has aided the New York Stock Exchange to gain its colossal size and global footprint. The blue-chip companies which are listed under NYSE are Berkshire Hathaway Inc, Coca-Cola, Walt Disney Company, Mc Donald’s Corporation, etc.

 2) NASDAQ:

nasdaq exchange

Second on the list of largest stock exchange in the world is NASDAQ which was primarily an abbreviation and stage for the National Association of Securities Dealers Automated Quotations. It is an American stock exchange and is headquartered at 151 W, 42nd Street, New York City.

The NASDAQ commenced its business on February 8, 1971, and is sighted as the world’s first electronically traded stock market. NASDAQ has a combined market capitalization of $10.8 trillion and is ranked second in the list of largest stock exchanges.  It consists of more than 3,000 stocks listed under it and comprises of the world’s humongous tech giants such as Apple, Microsoft, Google, Facebook, Amazon, Tesla, and Intel. 

Also Read: 31 Hand-Picked Best Quotes on Investing: Buffett, Munger, Graham & More.

3 )Tokyo Stock Exchange:

The Tokyo Stock Exchange (TSE) which is also known as Tōshō is located in TokyoJapan. It was validated on May 15, 1878, and is also the third-largest stock exchange in the world.

TSE  has close to 3,500 listed companies with a syndicated market capitalization surpassing the US$ 5.67 trillion. The TSE’s metric indicator is Nikkei 225 and it is home to some of the voluminous  Japanese giants with international exposure, including Toyota, Suzuki, Honda, and Mitsubishi and Sony. 

4) Shanghai Stock Exchange:

The Shanghai Stock Exchange (SSE) is located in the city of ShanghaiChina and is one of the two stock exchanges plying autonomously in the People’s Republic of China. Although its foundation traces back to 1866, it was adjourned after the Chinese Revolution in 1949. However, The Shanghai Exchange in its contemporary outlook was laid down in 1990.

Currently, Shanghai SSE is the world’s fourth-largest stock exchange with a combined market capitalization f  US$ 5.01 trillion. The most interesting fact is that the absolute market cap of the SSE is constructed out of formerly state-run insurance companies  & commercial banks. 

5)Honk Kong Stock Exchange:

The  Hong Kong Stock Exchange (SEHK)  is located in Hong Kong and is the world’s fifth-largest stock exchange on the basis of market capitalization.  It consists of 2,315 listed companies with a wholesome market capitalization of HK$29.9 trillion.

Its origin can be traced back to the mid-1800s and since then it has gone through a series of mergers and agglomeration with other exchanges. Some of the gigantic and eminent companies listed under the Hong Kong Stock Exchange are China Mobile, and HSBC Holdings & Petro China.

Also Read: Top 10 Stock Market Movies to Watch for Finance Geeks

6)London Stock Exchange:

london stock exchange image

The London Stock Exchange (LSE) is based in London and is the sixth-largest stock exchange in the world. It was established in 1571 and is the oldest stock exchange in the world.  It has more than 3,000 listed companies with a combined market capitalization of $4.59 trillion.

LSE is also the maiden source of benchmark prices, equity-market liquidity and market data in Europe. Some of the massive companies listed under the LSE are Barclays, British Petroleum and GlaxoSmithKline.

7)EURONEXT:

The Word EURONEXT is an acronym for European New Exchange Technology and has its corporate address at La Défense in Greater Paris. EURONEXT was established in 2000 by the consolidation of the exchanges in Amsterdam, Paris, and Brussels.

Over the years, it amalgamated with multiple exchanges, most particularly the New York Stock Exchange. It steers financial markets in Amsterdam, London, Brussels, Lisbon, Oslo, Dublin,  and Paris. It has around 1,500 listed companies leading to a market capitalization worth €4.1 trillion. EURONEXT provided the segments which are equities, warrants, exchange-traded, bonds, commodities, funds and certificates, derivatives, indices, and foreign exchange trading platform.

8)Shenzen Stock Exchange:

The Shenzhen Stock Exchange (SZSE) is oriented in the city of ShenzhenChina and was founded on  December 1, 1990. It is the 8th largest stock exchange in the world and has approximately 1,300 listed companies with a combined market capitalization of $3.92 trillion.

Most of the companies under this SZSE are corporate firms of companies in which the Government Of China has a controlling interest. The Shenzhen Stock Exchange had introduced the “ChiNext Board” in 2009 comprising of high-tech & high-growth startups, quite similar to NASDAQ.

9) TORONTO STOCK EXCHANGE:

The Toronto Stock Exchange (TSX) is situated in Toronto, Canada. It was introduced in 1852 and is held and wielded as a subsidiary of the TMX Group. It is the ninth-largest exchange in the world and has 2,207 listed companies with a combined market capitalization of $2.3 trillion.

The financial instruments include equities, investment trusts, exchange-traded funds, bonds, commodities, futures, options, and other products. It is also to be noted that mining and oil and gas companies are listed in more numbers under the Toronto Stock Exchange compared to other stock exchanges around the world.

10) BOMBAY STOCK EXCHANGE:

The Bombay Stock Exchange  (BSE) is an Indian stock exchange located at the high-wheeled Dalal Street in  Mumbai. It was established in 1875 and is Asia’s first-ever stock exchange. It is also the world’s 10th largest stock exchange with a total market capitalization of more than $2.2 trillion.

The BSE has approximately 5,000 listed companies and has assisted in the growth of the country’s corporate sector and financial markets. Securities listed under BSE comprises of stocks,  futures, options, index futures, index options, and weekly options. However, the BSE’s benchmark is measured by the Sensex which nearly covers all the sectors of the Indian economy.

Also read: A Complete List of Stock Exchanges in India

Catching a falling knife stock - Is it worth it cover

Catching a falling knife stock - Is it worth it?

The stock market is filled with all kind of people. Some prefer investing in fast-growing companies while there are others who prefer investing in high dividend-paying stocks. There are also value investor who favors investing in discounted companies. And then comes the daredevil bargain hunters who are eager to invest in falling knife stocks.

In this post, we are going to discuss what exactly are falling knife stocks and why it is dangerous to invest in these type of stocks. We’ll also look into a few strategies that investors can use while trying to catch a falling knife stock.

What are falling knife stocks?

The falling knife is that category of stocks which has undergone a rapid decline in share price in a short amount of time. Here, the term ‘falling knife’ is used as a metaphor for the rapidly declining share price of the company.

Now, by definition, there is so specific ‘magnitude of drop’ or ‘duration’ to define these falling knife stock category. The stock which may fall +50% in a month or +80% in six months, both can be considered in the category of falling knife stocks.

In the investing world, it is always suggested that “Do not try to catch a falling knife!”, especially if you’re a beginner. Anyways, the investors should proceed with great caution if they are interested to invest in these kinds of stocks. In general, these stocks are extremely dangerous and may result in a severe loss if the investor enters at the wrong time.

Note: Even in real-world, trying to catch a falling knife is extremely dangerous and can easily hurt your hand. A thumb rule here is to wait for the knife to fall on the ground and then pick it up. Similarly, if you are planning to invest in a falling knife stock, wait until the prices drop at a significantly lower price with a huge margin of safety.

falling knife example

A few recent examples of falling knife stocks in the Indian market

— Yes Bank: The stocks of Yes Bank has declined over 85% in the time duration between August 2018 to September 2019.

manpasand beverages share price sept 2019

— Manpasan Beverages: The stocks of Manpasand Beverages has declined over 95% in the time duration between May 2018 to September 2019.

yes bank share price sept 2019

— DHFL: The stocks of Deewan Housing Finance Corporate Limited has fallen over 90% in the time duration between September 2018 to September 2019.

dhfl share price sept 2019

If you have already tried catching these falling knives stocks during their downward journey, your portfolio would have been severely hurt by now. However, can these stock rebound and give massive returns to the investor who are planning to enter at this price? The answer to this question requires a lot more comprehensive study than just looking at their share price.

How falling knife stocks work?

The journey of falling knife category stocks is pretty straightforward. Initially, the negative news regarding a company can result in the decline of the share price. However, when the situation continues to degrade, it results in a market panic and subsequent fall in the prices. During such cases, there are two possible outcomes:

  • In a few cases, the share prices may rebound if there is positive news or the company is able to control the damage in the near future. Such scenarios can be extremely profitable for the investors who bought the stock at the discounted price before they bounced back.
  • However, in most cases, the investors may face severe loss even if they bought the stock at a discounted price if the company’s performance continued to weaken. In the worst-case scenario, if the company goes for bankruptcy, the investors may have to lose most of their investments.

Overall, picking such stocks at the near bottom can result in a massive gain. However, entering these companies at the wrong time may lead to a disaster. There are cases when these stocks never rebounded to the original price for decades since they started falling.

Reasons for the Company’s Price to fall:

There can multiple reasons for the company’s share price to decline. Here are a few of the top reasons:

  • A significant decline in revenue and profits for a continued time period.
  • Negative reports and the company continuously missing the market estimates/targets.
  • Deterioration of the company’s fundamentals
  • Discovery of malpractice by the company, fraud charges by SEBI or lawsuits
  • Changes in the management like the resignation of top managers, promoters, etc

Here, if the decline in the price is due to temporary reasons, the long term investor should continue to hold the stock or even buy more. However, if the reason is because of the change in the company’s fundamentals, it’s time to exit, even if you have to book a loss.

Also read: Why is a VALUE TRAP? The Bargain Hunter Dilemma!

Why investors are so much interested in catching falling knife stocks?

Many people find investing in falling knife stocks fascinating because of the following reasons:

  • As the share price of these companies has fallen significantly, they appear to be undervalued. Most investors consider these stocks as an excellent opportunity to purchase the stock before it rebounds to make handsome capital appreciation.
  • People anchor the current price of the company with its original price before it started falling and hence believe them as cheap. However, while anchoring the price, they do not give enough importance to recent events which resulted in the decline of prices.

Anyways, an investor should only buy these stocks if they have fundamental reasons backing the company, not just because the price has fallen significantly.

Also read: 11 Must-Know Catalysts That Can Move The Share Price.

A few points to consider which catching a falling knife stock:

If you are planning to invest in a falling knife stock category, here are a few points that may help you to analyze the situation better and avoid loss:

— Start with analyzing your own behavior: Are you planning to enter that stock because you’re anchoring its current price with its past prices, based on some predictions, or just to gamble.

— Say ‘no’ more often: In most of the falling knife cases, the stock is not profitable to the investors for sustained longer period of time. Although such stocks may seem like a great opportunity, try to say ‘no’ to the stock as much as possible. The more frequently you say ‘no’, the more time you’ll get to study the company and evaluate it better.

— Understand the situation: Read about the recent and past happenings and analyze whether the problem is temporary or structural.

— Do not buy stock on the first decline: There’s a famous Cockroach theory which says that if you find one cockroach in your kitchen, there are more cockroaches likely to be discovered. Similarly, if there’s a piece of bad news related to the company, more is yet to be revealed. Usually, after the first decline, there are more troubles ahead for the company. Therefore, as a thumb rule, do not jump into the stock on the first decline.

— Know the worst-case: Knowing the worst-case scenario can make you prepare for it. Before entering the stock, know how much risk can you handle. Will you be comfortable if your investment value in that stock falls below 70%? What is the risk vs reward for your investment?

— Be pessimistic: While calculating the intrinsic value of the stock, always be pessimistic and take conservative values while estimating the growth rate and estimating the future cash-flows.

— Always have a margin of safety: As these stocks have a higher risk, always have a bigger margin of safety while investing in these companies. For example, if the fair calculated intrinsic value turns out Rs 100, then give yourself a margin of safety of 40% and invest only when the price goes below Rs 60. The higher the margin of safety, the lower will be the risk.

— Diversify — Yes, you want to make big returns and the falling knife stocks seem to have the potential to give higher capital appreciation. However, if because of any reason, let’s say that your study is wrong or the stock didn’t perform the way you supposed it is going to, then you will face critical damage. Therefore, do not put all your money in a single stock, but diversify.

Also read: 5 Psychology Traps that Investors Need to Avoid

Closing Thoughts:

A falling knife stock category may represent a high opportunity, but they also have a higher potential to hurt the investor’s portfolio.

For newbie’s, it’s difficult to judge whether the stock is a value stock or value trap. If you are a beginner and not experienced in judging companies, I would suggest to simply ignore these stocks and try to find fundamentally strong companies.

For experienced investors, if you are planning to purchase them, then know what you’re getting into. Analyze the reward that you may receive by investing in these stocks, but also have the heart to see your investments going down and not making any gains for a long time. You should not expect the stock to bounce bank the very next day or even a month or so when you enter.

Top 10 Companies in India by Market Capitalization

Top 10 Companies in India by Market Capitalization.

Top 10 Companies in India by Market Capitalization (Updated Sept’19):

As per the International Monetary Fund (IMF), India is the seventh-largest economy in the world in terms of nominal Gross Domestic Product (GDP),  which is valued to be worth US$ 2.308 trillion. This is mainly due to business various Indian companies have been doing in India and overseas. 

Every company operating in India works extremely hard to get better in terms of the quality and customer satisfaction which they provide through its products or services. An organisation is generally evaluated on different parameters such as assets, profits, sales, market value, share price, etc. and is ranked accordingly. However, when we talk about the size of a company, one of the biggest factors to look is its market capitalization.

In this post, we are going to discuss the ten biggest public companies in India based on their latest market capitalization.

What is market capitalization?

Market capitalization is the aggregate valuation of the company based on its current share price and the total number of outstanding stocks. It is calculated by

Market capitalization = (Current market price of 1 share)*(total number of outstanding shares)

It helps to classify the companies in different types like large cap, mid cap, and small cap companies. The companies with a market cap of Rs 29,000 crore or more are large-cap stocks. Company stocks with a market cap between Rs 8,500 crore and 29,000 crores are mid-cap stocks and those less than Rs 8,500 crore market cap are small-cap stocks.

Related post: Basics of Market Capitalization in Indian Stock Market.

Example: 

Just by looking at the share price, you cannot judge the size of a company. For example, here are the share price of two companies from the automobile sector.

  1. Maruti Suzuki – Rs 5987.70
  2. Eicher Motors – Rs 15750.00

Which company is bigger?

If you just look at the share prices, you might think that Eicher motors share price is quite large compared to Maruti Suzuki, and hence, it may be bigger.

However, the total number of outstanding shares of Maruti Suzuki is much large compared to Eicher Motors. Maruti Suzuki have around 30.2 Crore shares while Eicher motors have 2.72 crores shares. Therefore, the market capitalization of Maruti Suzuki is Rs 180,828.54 Crores while the market capitalization of Eicher Motors is Rs 42,840 Crores.

Therefore, Maruti Suzuki is a bigger company compared to Eicher motors.

Top 10 Companies in India by Market Capitalization

Here is the list of the top 10 companies in India by market capitalization:

1. Tata Consultancy Services (TCS)

TCS building

Tata Consultancy Services Limited (TCS) is an Indian multinational information technology (IT) service and consulting company headquartered in Mumbai, Maharashtra, India. It is a subsidiary of Tata Group and operates in 149 locations across 46 countries.

TCS is the largest Indian company by market capitalization. TCS is now placed among the most valuable IT services brands worldwide. The market capitalization value of TCS is Rs. 802466.23 Crores with a current price of Rs.2138.55.

2. Reliance Industries

Reliance Industries Limited

Reliance Industries Limited (RIL) is an Indian multinational company headquartered in Mumbai. The company was co-founded by Dhirubhai Ambani and Champaklal Damani in the 1960s as Reliance Commercial Corporation.

Reliance owns businesses across India engaged in energy, petrochemicals, textiles, natural resources, retail, and telecommunications. Reliance is one of the most profitable companies in India. The market capitalization value of RIL is Rs.764308.09 Crores with a current price of Rs.1205.70.

3. HDFC Bank

HDFC Bank

HDFC Bank is an Indian banking and financial services company that was incorporated in 1994, with its registered office in Mumbai, India. Its first corporate office at Sandoz House, Worli was inaugurated by the then Union Finance Minister, Manmohan Singh.

As of  June 2019, it had a base of 1,04,154 permanent employees with 5,130 branches across 2,764 cities. It is India’s largest private sector lender by assets and market capitalization. It has a market capitalization value of Rs.598433.19 Crores with a current price of Rs.2187.75.

4. Hindustan Unilever

Hindustan Unilever
Hindustan Unilever Limited (HUL) was established in 1933. It is a British-Dutch manufacturing company headquartered in Mumbai, India. Its products include foods, beverages, cleaning agents, personal care products, water purifiers, and consumer goods.

As of 2019 Hindustan Unilever portfolio had 35 product brands in 20 categories with 18,000 employees and sales of Rs. 34,619 crores in 2017-18. The market capitalization value of Hindustan Unilever is Rs.395987.42 Crores with a current price of Rs.1829.20.

5. Infosys

Infosys building

Infosys Limited is an Indian multinational corporation that provides business consulting, information technology and outsourcing services.

It is the second-largest Indian IT company after Tata Consultancy Services with its headquarters in Bangalore, Karnataka, India. The market capitalization value of Infosys is Rs.354285.41 Crores with a current price of Rs.829.85.

Quick Tip: If you are new to the share market, you’ll need to open your demat account to start investing/trading. We’ll highly recommend opening an account with Zerodha, No 1 stockbroker in India. Here’s a detailed post on how to open Zerodha account step-by-step. 

6. H D F C

HDFC Limited

Housing Development Finance Corporation Limited (HDFC) is an Indian financial services company founded in 1977 as the first specialized mortgage company in India based in Mumbai. It is a major provider of finance for housing in India.

HDFC also has a presence in banking, life and general insurance, asset management, venture capital, realty, education, deposits, and education loans. The market capitalization value of HDFC is Rs.343110.50 Crores with a current price of Rs.1988.30.

7. ITC

ITC Limited Logo

ITC Limited is an Indian multinational conglomerate company headquartered in Kolkata, India.

It was Established in 1910 as the ‘Imperial Tobacco Company of India Limited’, the company was renamed as the ‘India Tobacco Company Limited’ in 1970 and later to ‘I.T.C. Limited’ in 1974. The dots in the name were removed in September 2001 for the company to be renamed as ‘ITC Limited’. It has a market capitalization value of Rs. 293918.22 crores with current price of Rs.239.25.

8. Kotak Mahindra Bank

Kotak Mahindra Bank

Kotak Mahindra Bank is an Indian private sector bank headquartered in Mumbai, India. Established in 1985  by Uday Kotak.

In February 2003, Kotak Mahindra Finance Ltd. (KMFL), the group’s flagship company, received a banking license from the RBI. It offers banking products and financial services in the areas of personal finance, investment banking, general insurance, life insurance, and wealth management. It is the 2nd largest Indian private sector bank by market capitalization value of Rs. 279739.96 crores with current price of Rs.1464.75.

9. ICICI Bank

ICICI bank building

It is an Indian multinational banking and financial services company headquartered in Mumbai and its registered office in Vadodara, Gujarat. It offers a wide range of banking products and financial services  in the areas of investment banking, life, non-life insurance, venture capital, and asset management.

ICICI Bank has 4867 branches and 14367 ATMs across India and has a presence in 17 countries including India as on March 31, 2018. The market capitalization value of ICICI bank is Rs.257904.55 crores with a current price of Rs.399.35.

10. State Bank of India

State Bank of India

The State Bank of India (SBI) is an Indian multinational, public sector banking and financial services statutory body with its headquarters in Mumbai.

SBI descends from the Bank of Calcutta, founded in 1806, via the Imperial Bank of India which in turn became the SBI in 1955, making it the oldest commercial bank in the Indian subcontinent. It is the largest bank in India with a 23% market share, besides a share of 1/4th of the total loan and deposits market. Market capitalization value of SBI is Rs. 250246.11 crores with a current price of Rs. 280.40.

Also Read :

Summary: Top 10 Companies in India by Market-cap

S. NoCompany NameIndustryLast PriceMarket Cap (In Cr)
1TCSIT/Software company2138.55802466.23
2RelianceRefineries, Oil & Gas1205.7764308.09
3HDFC BankNon-public sector banking2187.75598433.19
4HULConsumer products1829.2395987.42
5InfosysIT/Software company829.85354285.41
6HDFCFinancial company1988.3343110.5
7ITCCigarette, Hotels, Consumer products239.25293918.22
8Kotak Mah. BankPrivate bank1464.75279739.96
9ICICI BankPrivate Bank399.35257904.55
10St Bank of IndiaPublic Sector Bank280.4250246.11

Disclaimer: This data is updated on September 19, 2019. As the stock price changes in the future, the market capitalization will also change. Hence, the list of top 10 companies in India by market capitalization can also change in the future.

Also read: How to Invest in Share Market? A Beginner’s guide

Cyclical and Non-cyclical stocks: How do they differ?

The best offense is a good defense. Just like in military combat or football, investors also need a good offense and defense strategy. In other words, you need to use more than one strategy in order to succeed. As a serious investor, there are many different ways you can do this. You can invest in a variety of stocks, cash, and other securities, you can also diversify your portfolio by investing in securities across various sectors and markets or you can invest in stocks that are at different growth and value levels.

Implementing the right strategy requires a good knowledge of the global economy and how the markets work- if you don’t have a good understanding of this, making decisions become incredibly difficult. As we all know, the economy goes through different business cycles and while we can’t predict the outcome of the cycles we can alter our decisions to keep up with the ever-changing landscape. This changing environment also provides a great way for investors to mix up their portfolio, namely with investing in cyclical and non-cyclical industries.

What are cyclical stocks?

As the name suggests, cyclical stocks are those that move in the direction of the market. That is when the economy is doing well, the stocks go up and when there is a downturn in the economy, the value of the stock goes down too. These stocks are more closely aligned with the broader economy and are more prone to economic activity.

For many investors, the movement of stock in cyclical industries provides a great opportunity to earn revenue on the stock by buying when there is a downturn and selling when there is an upward trend. For a novice investor, this may seem like a fool-proof strategy but be cautious, as it is almost impossible to tell when there will be a downturn in the market.

Cyclical industries usually may include durable goods (that last for a long time into the future), non-durable goods (that have a short shelf life) and services like automobile, construction, and travel.

When the economy is doing good and the people are earning well, they may spend a lot of money on buying a new car, constructing their new house or even plan fancy off-shore travels. However, when there is a downturn in the economy, people may prefer to hold these expenses for another year or two.

Around 75 percent of the stocks listed in the stock exchange are cyclical and follow the market trends. A few examples include Ferrari NV (RACE), Alibaba Group Holding Ltd. (BABA) and Royal Caribbean Cruises Ltd. (RCL).

What are non-cyclical stocks?

While cyclical industries may seem like a good investment, every good offense needs a defense, hence, it is important to balance out your portfolio with non-cyclical or defensive stocks. During a boom, people splurge on goods and services such as travel and cars. But during a slump, people stop spending on purchases that they don’t consider a basic necessity, instead they focus their spending money on food, water, and shelter.

non cyclical industry

During an economic recession or depression, the revenue and cash-flows and share price of non-cyclical companies continue to do well because they are industries that produce the basic needs of life that people will continue to consume.

In addition to basic needs, non-cyclical stocks also include those goods that are addictive such as tobacco or alcohol which can put ethical investors in a tricky situation as these industries do well even during a slump and reduces the number of industries that they can invest in.

Defensive stocks include goods and services in industries that are not affected by market fluctuations such as utilities, food, and medicines. It is basically any good or service that people will buy whether or not the economy is doing well. A few examples of defensive stock companies include Kraft Heinz Company (KHC), Johnson and Johnson (JNJ) and Sysco Corporation (SYY).

Bonus: The top-down strategy

There are two main investing strategies in the market, the top-down approach, and the bottom-up approach. The top-down approach involves looking at the economy as a whole and picking stocks that do well during certain economic conditions. This strategy requires the investor to have a good understanding of the macroeconomy along with its various sectors and industries to know what industry will perform well during the different business cycles. They also need to assess the inflexion points in the economy, that is when a certain stock price is expected to go up or down. For cyclical and non-cyclical stocks, top-down is the most commonly used strategy.

The bottom-up approach, on the other hand, involves looking at the stock individually and making investment decisions based on independent parameters.

When using the top-down approach, there are many indicators that investors can use to study the market. The first and most obvious metric is the GDP (Gross Domestic Product). This is the total value of all the goods and services produced in the economy and gives us a good understanding of the overall economic health.

Another great indicator is the ‘Purchasing Manager’s Index (PMI). This is a survey conducted among the purchasing managers in different sectors and industries in the economy. The PMI provides the investor with information on how the businesses are currently performing and which direction the economy is headed.

A third metric is the Consumer Price Index (CPI). This will give an investor insight into the changing price levels of goods and services in the economy and is a reflection of the state of the economy.

The top-down strategy is considered successful when the cyclical and defensive stocks are in perfect correlation with each other. A 100% correlation would mean that the stocks move in synch with each other while a -100% correlation means that the stocks are still in sync but move in the opposite direction.

During the 2008 recession, luxury goods such as Ford cars faced a huge decline in the value of their stock as people stopped spending on expensive items when the economy was down but at the same time, the stock for beverages such as Coco-Cola continued to do well as people spent money on this regardless of the business cycle.

Also read:

Conclusion

It is important for every investor to have a balanced and diversified portfolio with both cyclical and non-cyclical stocks.

Cyclical stocks include more luxury goods and hence a provide a higher return than non-cyclical stocks. However, the investor needs to study the market carefully and have a good tolerance for risk. Defensive stocks are safer investments but provide lower returns but are better for investors looking for safe investments Remember low risk, low return.

10 Best Dividend Stocks in India That Will Make Your Portfolio Rich 2018

10 Best Dividend Stocks in India That Will Make Your Portfolio Rich.

10 Best Dividend Stocks in India (Updated: May 2019)

“Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.” – John D Rockefeller

Whenever a retail investor, like you and me, buys a stock, then their main aim is to earn money through their investment. There are two methods by which anyone can earn money by investing in stocks. They are:

  1. Capital Appreciation
  2. Dividends

The first one, capital appreciation, is quite famous among investors. Everyone knows this secret to earn in the stock market. Buy low and sell high. The difference is capital appreciation or profit.

Suppose you bought a stock at Rs 100 and two years hence, the price of the stock has increased to Rs 240. Here, the capital appreciation is Rs 240- Rs 100 = Rs 140. In short, you made a profit of Rs 140 or 140%.

Almost everyone who enters the market knows this method of earning by stocks. It can also be concluded that most people enter the market hoping that their investment will be doubled or quadrupled and will make them a millionaire one day through capital appreciation.

Now, let us move to the second method of earning through stocks- DIVIDENDS.

Whenever a company is for profit, it can use this profit amount in different ways. First, it can use the profit amount in its expansion like acquiring a new property, starting a new venture/project, etc. Second, it can distribute the profit among its owners and shareholders. Third and final, it can distribute some portion of the profit to the shareholders and use the remaining in carrying out its expansion work.

This amount distributed among the shareholders is called DIVIDEND.

What is a dividend?

“A dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.”

Typically, most companies give dividends two times a year, namelyInterim dividend and final dividend. However, this is not a hard and fast rule. Few companies, like MRF, gives dividends three times a year.

Read more: Dividend Dates Explained – Must Know Dates for Investors

Why are dividends good?

Suppose you are a long-term investor. You have invested in the stocks of a company for 15-20 years. Now, if the company does not give any dividends, there is no way for you to make money until you sell the stocks.

On the other hand, if the company gives a regular dividend, say 4% a year, then you can plan your expenses accordingly.

A regular dividend is a sign of a healthy company. 

A company, which has given a consistent (moreover growing) dividend for an interval of over 10 consecutive years, can be considered a financially strong company. On the contrary, the companies that give irregular dividends (or skips dividends in harsh economic conditions) can not be considered as a financially sound company.

If you want to learn stocks from scratch, I will highly recommend you to read this book: ONE UP ON THE WALL STREET by Peter Lynch- best selling book for stock market beginners.

Big dividend yield can be an incredibly attractive feature of stock for the people planning for retirement.

Now that we have understood the meaning of dividends, let us learn a few of the important financial terms that are frequently used while talking about dividends.

Must know financial terms regarding Dividends

1. Dividend yield: It is the portion of the company earnings decided by the company to distribute to the shareholders. A stock’s dividend yield is calculated as the company’s annual cash dividend per share divided by the current price of the stock and is expressed in annual percentage. It can be distributed quarterly or annually basis and they can issue in the form of cash or stocks.

Dividend Yield = (Dividend per Share) / (Price per Share)*100

For Example, If the share price of a company is Rs 100 and it is giving a dividend of Rs 10, then the dividend yield will be 10%. It totally depends on the investor whether he wants to invest in a high or low dividend yielding company.

2. Dividend %: This is the ratio of the dividend given by the company to the face value of the share.

3. Payout ratio: It is the proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage. The Payout Ratio is calculated as follows:

Payout Ratio = Dividends per Share (DPS) / Earnings per Share (EPS)

As a thumb rule, avoid investing in companies with very high dividend payout ratio. In other words, be cautionary if the payout ratio is greater than 70%. (Also read: The Fundamentals of Stock Market- Must Know Terms)

To move further now that we have understood the basics behind the dividends, here is the list of 10 Best Dividend Stocks in India.

10 Best Dividend Stocks in India-

Indian stocks- 10 Best Dividend Stocks in India

In addition, if you are interested to know about other high dividend stocks, then you can find it here: BSE TOP DIVIDEND STOCKS

The growing companies give less dividend yield to their shareholders as they use the profit amount in their expansion.

On the other hand, the Blue Chip stocks, which are large and established company and has already reached a saturation point, gives good regular dividends. Further, the public sector companies are known for giving good dividends. Industries like Oil and petroleum companies, in general, give decent dividends.

Here are few of such stocks with high current dividend yields which are also worth investing:

10 Best Dividend Stocks in India That Will Make Your Portfolio Rich - Indian stocks

Also Read: PSUs with high dividend yields

Where to find dividend on a stock?

You can find the dividend of stocks on any of the major financial websites in India. Here are few:

  1. Money Control: http://www.moneycontrol.com/
  2. Economic times- Market: http://economictimes.indiatimes.com/markets
  3. Screener: https://www.screener.in/
  4. Investing.com: https://in.investing.com/
  5. Market Mojo: https://www.marketsmojo.com/markets

Top Dividend Paying Indian Stocks in 2017 quote

That’s all. I hope this post about ‘10 Best Dividend Stocks in India That Will Make Your Portfolio Richis useful to the readers. Further, I will highly recommend not investing in stocks based on just high dividend yield.

New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

If you have any queries or suggestions, feel free to comment below. I will be happy to receive your feedback. #HappyInvesting.

equity valuation cover 2

Equity Valuation 101: Why Value?

A prominent question many people have about investing in stocks is, “Does the purchase price matter?” or “Should I value a stock before purchasing it”?

A lot of financial theory argues that you shouldn’t. They say, markets are always efficient in pricing securities and you should rather worry about decreasing frictional costs like brokerage charges, transaction charges, churn costs and so on.

But Mr. Charlie Munger, the business partner of the world’s richest investor Mr. Warren Buffett, has a different answer:

It was always clear to me that the stock market couldn’t be perfectly efficient, because, as a teenager, I’d been to the racetrack in Omaha where they had the pari-mutuel system. And it was quite obvious to me that if the ‘house take’, the croupier’s take, was seventeen percent, some people consistently lost a lot less than seventeen percent of all their bets, and other people consistently lost more than seventeen percent of all their bets. 

 

So the pari-mutuel system in Omaha had no perfect efficiency. And so I didn’t accept the argument that the stock market was always perfectly efficient in creating rational prices. The stock market is the same way – except that the house handle is so much lower.

 

If you take transaction costs – the spread between the bid and the ask plus the commissions – and if you don’t trade too actively, you’re talking about fairly low transaction costs. So that, with enough fanaticism and enough discipline, some of the shrewd people are going to get way better results than average in the nature of things.

 

It is not a bit easy…But some people will have an advantage. And in a fairly low transaction cost operation, they will get better than average results in stock picking. To us, investing is the equivalent of going out and betting against the pari-mutuel system. We look for a horse with one chance in two of winning and which pays you three to one. You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing.

Charlie Munger (USCB, 2003).

Interesting. So, what’s ‘Parimutuel Betting‘?

Let’s say that you are about to bet $100 on a Horse Race. A total of ten horses are participating in the race and you are given the following statistics:

You are told that 100 people have laid down their bets (Let’s call them the ‘Horse Market’) and the total pool of bets is $4,050. Indirectly, you can assess how these 100 people have determined the probability of winning, or ‘Odds’ of winning, for each of these horses. In fact, Horse #6 seems to be an overwhelming favorite, with $1,700 bet for the horse.

But before blindly betting on Horse #6, you need to understand the most important thing about Parimutuel Betting. If Horse #6 indeed wins, everyone who bet on Horse #6 will get $4,050 i.e. Everyone will make roughly 2 times of their bet amount (For convenience, let’s just say the remaining 0.38 times is participation fee). Is that good?

Hold your horses (Pun intended)!

If you bet on Horse #5 or Horse #9 instead, you can make 81 times the money, instead of the paltry 2 times. Well, well, now is this a better bet? Logically speaking, these horses have had a very little bet on them because they may be poor to begin with. The 100 gamblers already know this. That’s why only 1-2 of them have placed bets for these horses.

Wait, this is confusing. Which horse should I bet on now? Let’s recount the statement made by Mr. Charlie Munger:

“We look for a horse with one chance in two of winning and which pays you three to one. You’re looking for a mispriced gamble.”

A mispriced gamble. That’s where the trick lies. To summarize Mr. Munger’s thought process:

  1. You shouldn’t bet blindly on Horse #6, because you will only make only 2 times the money, the lowest reward of the lot. Even when Horse #6 can be deemed the healthiest horse with the most skilled jockey, the payout is simply too low.
  2. You shouldn’t bet blindly on Horses #5 or #9, even though they have an astronomical payout of 81 times. It is more likely that Horses #5 or #9 could be sick/weak or their jockeys inexperienced.
  3. The sweet spot, therefore, is in a bet where you think there’s mispricing i.e. A bet where the ‘Odds’ have been miscalculated by the Horse Market people. Take Horse #1 for instance. The Odds here are 8:1 i.e. The Horse Market people think there’s only a 12.50% (1/8) Probability of this horse winning. If you believe that these Odds are somehow way wrong i.e. If you believe that this horse actually has a 25% (1/4) Probability of winning, then you should consider betting on this one. Of course, you should repeat this exercise for all the horses and figure out which one has the most mispriced Odds and bet on that one.

Sounds simple enough? Horse Betting is decidedly more complex than this. However, it proves to be an interesting lesson in investing. This system of Parimutuel Betting, Mr. Munger argues, also applies to the Stock Market. I would personally visualize it like this:

To put it in a words, then:

  1. You shouldn’t invest blindly in the well-known, excellent company. Although these type of companies have the lowest probability of making a Capital Loss (i.e. Chance of not achieving the Average Returns) over the long term, they also have a low, 15% returns over the long term. Put together, they have an Expected Returns of 12%, which is neither too high, nor too low.
  2. You shouldn’t invest blindly in the unknown, terrible company. Although these type of companies can become potential ‘multi-baggers’ over the long term, clocking a CAGR of 23%, they also come with a high 50% risk of a potential Capital Loss. Put together, they have an Expected Returns of 11.50%, the lowest of the lot.
  3. The sweet spot, therefore, could be in the lesser-known, mediocre companies. These type of companies offer a decent 18% CAGR over the long term and also come with a moderate, 30% Capital Loss probability. Put together, they have an Expected Returns of 12.60%, the highest of the lot.

Of course, this is just an example. There are thousands of Stocks listed around the world and there might very well be numerous permutations and combinations of this in action at any given time. Instead of the 100 people from our horse betting example, the Stock Market consists of millions of people. They are pricing the odds for a stock every moment a trade is executed. It is an investor’s job to figure out the most mispriced bet and pick it up.

Just remember. You don’t make the most money-per-risk-taken by betting on the most favorite gamble. And you don’t make the most money-per-risk-taken by betting on the least favorite gamble, either. You make the most money-per-risk-taken by betting on the gamble where the odds are highly mispriced.

Also read: Why Warren Buffet Suggests- ‘Price Is What You Pay, Value Is What You Get’?

That’s it for today! I’ve used the word ‘Intrinsic Value’ several times in this post, without really letting on much what it is supposed to be. Think about what it means. Let’s explore this more in ‘Equity Valuation 102’, the next post.

wealth creators 2018 cover

Top 20 Wealth Creator (& Destroyer) Stocks of 2018

The calendar year 2018 was full of ups and downs for the Indian stock market investors. While Sensex made its all-time high in August 2018, the net return in this year is still just 4.90% (YTD). Sensex started with 33,812 points in January 2018 and as of December 2018, it is currently hovering around 35,470 points.

nifty 2018

On the other hand, if we look into the NSE benchmark index Nifty 50, it started at 10,435 points in January 2018 and currently trading at 10,663 points, with an overall return of merely 2.18% this year.

nifty 2018

If we compare the returns on Nifty in 2018 with that of last year (2017- when it gave a return of around 28.6%), we can easily notice that the index has comparatively underperformed in 2018. Nonetheless, ups and downs are the characteristics of the market and the stock market investors should be not be haunted by it.

As the year 2018 is fastly approaching to its end, we performed a short analysis to find the winning and losing stocks of 2018. Here is a list of 20 large cap companies in India with a market capitalization greater than Rs 100 Billion, which either grew over +30% or fell over -35% within the year 2018.

If you are interested in large-cap companies, this list might give you a rough idea of the stocks that you missed or can add in your watchlist for the upcoming year.

Top 20 Wealth CREATORS of 2018

S. No Name Symbol Industry Last Price Market Cap 1-Yr Chg (%)
1 HEG HEGL Electronic Instr. & Controls 3675.35 155.86B 83.82
2 L&T Technology Services LTEH Construction Services 1687.05 171.74B 71.22
3 Larsen & Toubro Infotech LRTI Software & Programming 1695 291.26B 57.67
4 Adani Enterprises ADEL Coal 158.55 175.67B 53.92
5 Bata India BATA Footwear 1109 144.13B 47.74
6 Tata Consultancy TCS Software & Programming 1918.5 7130.75B 44.97
7 Bajaj Finance BJFN Consumer Financial Services 2564.9 1497.28B 43.9
8 Tech Mahindra TEML Software & Programming 697.9 684.05B 41.43
9 Indiabulls Ventures INDB Investment Services 379.85 235.61B 41.22
10 MindTree MINT Computer Services 837.7 139.19B 39.69
11 Nestle India NEST Food Processing 10923.35 1064.11B 38.56
12 Mphasis MBFL Software & Programming 1018.15 187.77B 38.52
13 Jubilant Foodworks JUBI Restaurants 1218.95 173.76B 38.14
14 Abbott India ABOT Biotechnology & Drugs 7466.25 157.83B 34.82
15 Avenue Supermarts AVEU Retail (Grocery) 1545.75 1031.01B 34.28
16 Ipca Laboratories IPCA Biotechnology & Drugs 801.85 101.97B 33.6
17 Divi’s Labs DIVI Biotechnology & Drugs 1447.15 392.45B 32.77
18 Hindustan Unilever HLL Personal & Household Prods. 1784.65 4009.29B 31.56
19 Adani Power ADAN Electric Utilities 50.8 194.66B 31.27
20 Britannia Industries BRIT Food Processing 3100.55 751.53B 30.64

 

HEG was the biggest wealth creator in the large-cap segment this year. This stock gave a return of over 83% in 2018. Currently, HEG is trading at a share price of Rs 3,675. Surprisingly, this stock was also one of the biggest winners in 2017. (Quick Note: The stock of HEG was hovering at just Rs 160 during the start of January 2017).

Next, L&T Technology services (+71%) and Infotech (+57%) –both have performed well followed by Adani Enterprises and Bata India. TCS has also given a return of over 44% this year.

A few other popular winners in this list are Bajaj Finance, Tech Mahindra, India bull ventures, MindTree, NESTLE and Avenue Supermart (DMart).

Top 20 Wealth Destroyers of 2018

S. No Name Symbol Industry Last Price Market Cap 1-Yr Chg (%)
1 Vodafone Idea VODA Communications Services 37.35 335.36B -62.89
2 Tata Motors DV Ltd TAMdv Auto & Truck Manufacturers 94.15 559.20B -60.83
3 Tata Motors TAMO Auto & Truck Manufacturers 172.5 559.20B -59.12
4 NBCC India NBCC Construction Services 54.15 100.86B -57.36
5 Motherson Sumi Systems MOSS Auto & Truck Parts 161.55 534.49B -57.13
6 Punjab National Bank PNBK Regional Banks 76.7 284.07B -56.41
7 CBI CBI Regional Banks 35.15 106.22B -53.54
8 Bharat Electronics BAJE Aerospace & Defense 87.95 215.91B -53.34
9 Aditya Birla Capital ADTB Consumer Financial Services 97.05 216.36B -48.12
10 Mangalore MRPL Oil & Gas Operations 72.8 131.23B -43.24
11 Hindustan Petroleum HPCL Oil & Gas Operations 246.3 381.94B -42.63
12 Sun TV Network Ltd SUTV Broadcasting & Cable TV 576.95 233.42B -42.28
13 Bharti Airtel BRTI Communications Services 309.1 1233.18B -41.52
14 Yes Bank YESB Regional Banks 182.3 424.05B -41.22
15 Bank of India BOI Regional Banks 100.9 171.04B -41.05
16 New India Assurance THEE Insurance (Miscellaneous) 183.9 306.93B -40.15
17 Steel Authority SAIL Iron & Steel 51.95 218.50B -39.2
18 Indian Bank INBA Regional Banks 238.4 115.26B -39.15
19 Emami EMAM Personal & Household Prods. 401.85 187.63B -38.67
20 Vedanta VDAN Metal Mining 196.4 745.40B -37.96

 

Interestingly, Vodafone Idea is the biggest loser in this list and has lost a market price of over 62% in this year. The stock was trading at a market price of Rs 104.60 at the start of the year, and currently, its share price is fluctuating at Rs 37.35.

Tata Motors is yet another beaten company on the street. Both fully paid ordinary shares and DVR are down by around 60% in this year. This stock is continuously declining for around two years, since it made its high of Rs 578.70 in September 2016. Currently, Tata motors ordinary shares are trading at a price of Rs 172.5.

A few of the other popular losing stocks in this list are NBCC, Motherson Sumi Systems, PNB, CBI, Bharat Electronics, Aditya Birla Capital, Mangalore Petronet, HPCL, Bharti Airtel and YES BANK.

Also read:

Closing Thoughts

Although it’s good to monitor the yearly returns of the companies, however, looking at the performance of stocks just for a year is not enough. It is the long-term returns of the stocks that matter the most for the wealth creation of shareholders.

Besides, a lot many big companies on the list are trading at a decent discount currently. Whether the losing companies mentioned above will continue to decline further or bounce back will depend on their future performances.

The share investors should consider these as opportunities to invest in amazing businesses at a fair value. Happy Investing.

Disclaimer: The stocks listed in this post should not be considered as recommendations. Please study the companies carefully or take the help of a financial advisor before investing.

10 Best Blue Chip Companies in India that You Should Know

10 Best Blue Chip Companies in India that You Should Know.

… but blue chip companies are boring. It’s better to invest in growth stocks with huge upside potentials.”, Gaurav argued energetically.

Yes, blue chips are not the ‘hot’ stocks in the market. However, they are a good option for the investors who are looking for low-risk investments with decent returns.”, I replied.

Gaurav has been investing in the stock market for the last two years and he likes to discuss his investment strategies with me. Nevertheless, his investment style is totally different from that of mine. Gaurav loves to invest majorly in mid-caps and small-cap companies (including penny stocks) which can grow at a fast pace. On the other hand, I like investing in a diversified portfolio.

That’s true, dude. But most of these blue chip companies have already reached a saturation point. They can not continue to grow at the same pace and hence can’t similar returns as they used to give in the past. Once a company has sold a billion products, it’s difficult to find the next billion customers.”, Gaurav challenged me with his witty reply. 

I know the rule of large numbers, Gaurav. Thank you for reminding me. Moreover, I agree that the large-cap companies cannot maintain the same pace of growth forever. But bro, it doesn’t mean that they won’t be profitable in future or can’t give good returns to their shareholders… They have already established their brand. If they use their resources efficiently, they can make huge fortunes for themselves as well as for their shareholders… 

For example- take the case of Reliance Industries. Reliance is a market leader in its industry and has a lot of customers. But they are also using their capital efficiently to grow their business. Two years back, they entered a new market- Telecommunication Industries, and now they are also a leader in that industry.

Because of their strong financials- they were able to bring the latest 4G technology to the Indian market and hence were able to quickly acquire a lot of customers. As the initial set-up cost in this industry is very high, they have created an entry barrier for the small and mid-cap companies. This is what a blue-chip company can do if they use their resources properly.

Gaurav looked a little mind-boggled. That’s why I thought better to give him another example to make him understand the capabilities of blue chip companies.

Let’s discuss another example- Hindustan Unilever. If you think that HUL cannot grow any further because it is a large-cap company, then you might need to reconsider it. HUL already have popular products in the market like Lux, Lifebuoy, Surf Excel etc which are generating them a good revenue from those products. But, they still have a large rural area to cover. They are not so popular in the village areas, are they? So, they can definitely grow in the rural areas…”

…besides, as they have enough resources and financials, they are also continuously working on new product development in their Research & development (R&D) department. If they can make another great product, their profits will add-up in the future….

Finally, when Gaurav didn’t argue further, I concluded-

…a good blue chip company is like Rahul Dravid. If you want fast scorers (or T-20 players), then you may not like his batting style. However, if you are looking for dependable players, then you will definitely appreciate Rahul Dravid’s consistency.”

Blue Chip Companies in India:

If you start counting the numbers, you’ll find that the stocks can be categorized into many groups. Based on the market capitalization, they can be defined as small-cap, mid-cap, and large-cap companies. Based on the stock characteristics, there are categorized as growth stocks, value stocks, and dividends (income) stocks.

However, there is one particular type of stocks which gets a lot of attention from every kind of investors (beginners to the seasoned players)- and they are the BLUE CHIP stocks. In this post, we are going to discuss what are blue chip companies and the ten best blue chip companies in India. Here are the topics that we will cover in this post-

  • What are the blue chip companies?
  • Why are they called blue chips?
  • Key characteristics of blue chip companies.
  • 10 Best Blue chip companies in India.
  • Summary.

This is going to be a long post, but I promise that it will be worth reading. So, without wasting any further time, let us understand the blue chip companies in India.

What are Blue Chip companies?

Blue chip companies are large and well-established companies with a history of consistent performance.  These companies are financially strong (usually debt-free or very low debts) and are capable to survive in the tough market situations.

Most of the blue chip companies are the market leaders in their industry. Few of the common examples of blue chip companies in India are HDFC Bank, ITC, Asian Paints, Maruti Suzuki etc.

Top 10 Companies in India by Market Capitalization

Signature Characteristics of Blue Chip Companies-

Here are few signature characteristics which you can look forward while researching blue chip companies—

  1. They are large reputed companies.
  2. They have a widely used products/services.
  3. Most of these companies are listed in the market for a very long time.
  4. Blue chip companies have survived a number of bear phase, market crisis, financial troubles etc. But they are still going strong.
  5. Blue chip companies have a strong balance sheet (a large number of assets compared to liabilities) and a healthy income statement (revenues and profits continuously growing for the last few decades).
  6. These companies have a good past track record of stable growth.

Almost all blue chip stocks are older companies. You might already know many of the blue chip companies in India and have been using their products/services in your day-to-day life.

For example-  Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Wall’s and Pureit —- all these products are offered by the same blue chip company in India – Hindustan Unilever (HUL).

New to stocks? Confused where to begin?  Here’s an amazing online course for beginners: ‘HOW TO PICK WINNING STOCKS?‘ This course is currently available at a discount. 

Why are they called blue chips?

Oliver Gingold- who worked at Dow Jones, is credited to name the phrase ‘Blue Chip’ in 1923. The term ‘blue chips’ became popular after he wrote an article where he used ‘Blue chips’ to refer the stocks trading at a price of $200 or more.  

Quick Note: There are other sets of investors who believe that blue chip companies got its name from the Poker game, as in that game- blue chips are relatively more valuable. Similar to the game, the stocks which are more valuable in the market are termed blue chip stocks.

Although Oliver Gingold used the term ‘blue chips’ for high priced stocks, however, later people started using this word more often to define high-quality stocks (instead of high priced stocks).

What are the financial characteristics of blue chip stocks?

Apart from the signature characteristics discussed above, here are few key financial characteristics of blue chip companies –

1. Blue chip companies have a large market capitalization -As a thumb rule, the market cap of most of the blue chip companies in India is greater than Rs 20,000 Crores.

2. Good past performance: Blue chip companies have a track record of good past performance (like consistently increasing annual revenue over a long-term).

3. Low debt to equity ratio: The bluest of the blue chips are (generally) debt free stocks. However, a lower and stable debt to equity ratio can also be considered as a significant characteristic of blue chip companies.

4. Good dividend history: Blue chip companies are known to reward decent dividends to their loyal shareholders.

5. Other characteristics: Apart from the above four- few other key characteristics of blue chip companies are a high return on equity (ROE), high-interest coverage ratio, low price to sales ratio etc.

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

10 Best Blue Chip Companies in India:

Now that you have understood the basic concept, here is the list of top 10 best blue chip companies in India. (Disclaimer- Please note that the companies mentioned below are based on the author’s research and personal opinion. It should not be considered as a stock recommendation.) 

ITC

itcIndian Tobacco Company (ITC) is one of the biggest conglomerate company in India. ITC was formed in August 1910 under the name of Imperial Tobacco Company of India Limited. It has a diversified business which includes five segments: Fast-Moving Consumer Goods (FMCG), Hotels, Paperboards & Packaging, Agri-Business & Information Technology. Currently, ITC has over 25,000 employees.

As of 2016, ITC Ltd sells 81 percent of the cigarettes in India. Few of the major cigarette brands of ITC include Wills Navy Cut, Gold Flake Kings, Gold Flake Premium lights, Gold Flake Super Star, Insignia, India Kings etc.

Apart for the cigarette industry, few other well-known businesses of ITC are Aashirvaad, Mint-o, gum-o, B natural, Sunfeast, Candyman, Bingo!, Yippee!, Wills Lifestyle, John Players, Fiama Di Wills, Vivel, Essenza Di Wills, Superia, Engage, Classmate, PaperKraft etc.

HDFC BANK

hdfc bankHDFC Bank is India’s leading banking and financial service company. It is India’s largest private sector lender by assets and has 84,325 employees (as of March 2017).

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. It is also the largest bank in India by market capitalization and was ranked 69th in 2016 BrandZ Top 100 Most Valuable Global Brands.

Infosys

infosysInfosys Limited is an Indian multinational corporation that provides business consulting, information technology and outsourcing services. It has its headquarters in Bengaluru, Karnataka, India. Infosys is the second-largest Indian IT company by 2017 and 596th largest public company in the world in terms of revenue. On April 19, 2018, its market capitalization was $37.32 billion.

Infosys main business includes software development, maintenance, and independent validation services to companies in finance, insurance, manufacturing and other domains. It had a total of 200,364 employees at the end of March 2017.

HUL

hulHUL is one of the largest Fast Moving Consumer Goods (FMCG) Company in India with a heritage of over 80 years. It is a subsidiary of Unilever, a British Dutch Company. HUL’s products include foods, beverages, cleaning agents, personal care products, and water purifiers.

Few famous products of HUL are Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Walls and Pureit.

Nestle India

nestleNestle India is a subsidiary of Nestle SA of Switzerland- which is the world’s largest food and beverages company. It was incorporated in the year 1956. Nestle India Ltd has 8 manufacturing facilities and 4 branch offices in India.  The Company has continuously focused its efforts to better understand the changing lifestyles of India and anticipate consumer needs in order to provide Taste, Nutrition, Health and Wellness through its product offerings.

Few famous products of Nestle India are Maggi, Nescafe, KitKat, MUNCH, MILKY BAR, BARONE, NESTLE CLASSIC, ALPINO etc. (On 8 March 2018, Nestle Indias food brand MAGGI completed 35 years of existence in India.)

Eicher Motors

Eicher Motors is an automobile manufacturer and parent company of Royal Enfield, a manufacturer of luxury motorcycles. Royal Enfield has made its distinctive motorcycles since 1901 which makes it the world’s oldest motorcycle brand in continuous production. Royal Enfield operates in over 40 countries around the world.

The Eicher Group has diversified business interests in design and development, manufacturing, and local and international marketing of trucks, buses, motorcycles, automotive gears, and components.

Reliance Industries

reliance industriesThis company needs no introduction. Reliance Industries is an Indian conglomerate holding company and owns businesses across India engaged in energy, petrochemicals, textiles, natural resources, retail, and telecommunications.

In December 2015, Reliance Industries soft-launched Jio (Reliance Jio Infocomm Limited) and it crossed 8.3 million users as of January 2018.

Reliance is one of the most profitable companies in India and the second largest publicly traded company in India by market capitalization. On 18 October 2007, Reliance Industries became the first Indian company to reach $100 billion market capitalization. It is also the highest income tax payer in the private sector in India.

Asian Paints

Asian paint 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.

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.

TCS

Tata Consultancy Services Limited (TCS) is an Indian multinational information technology (IT) service, consulting and business solutions company. It was established in 1968 as a division of Tata Sons Limited. As of March 31, 2018, TCS employed 394,998 professionals.

TCS is one of the largest Indian companies by market capitalization (Rs 722,700 Crores as of June 2018). It is now placed among the most valuable IT services brands worldwide. TCS alone generates 70% dividends of its parent company, Tata Sons.

Bajaj Auto

bajaj autoBajaj Auto is a global two-wheeler and three-wheeler Indian manufacturing company. It manufactures and sells motorcycles, scooters and auto rickshaws. Bajaj Auto was founded by Jamnalal Bajaj in Rajasthan in the 1940s. It is the world’s sixth-largest manufacturer of motorcycles and the second-largest in India. 

Few of the popular motorcycle products of Bajaj Auto are Platina, Discover, Pulsar and Avenger and CT 100. In the three-wheeler segment, it is the world’s largest manufacturer and accounts for almost 84% of India’s three-wheeler exports.

Also read: Best Stocks for Long term Investment in India.

Summary:

Most people invest in blue chip companies become of their long history of consistent performance and a similar expectation of standard performance in the future. Blue chip companies are low-risk high return bet for the long term.

Many blue chip companies in India like Tata, Reliance, Infosys etc are considered as ‘Too-big-to-fail’ companies as they have survived and remained profitable for a very long time. Nevertheless, this is not always true!!

3 Simple Tricks to Stock Research in India for Beginners cover

3 Simple Tricks to Stock Research in India for Beginners.

3 simple tricks to stock research in India for beginners: Hi Investors. It’s been a while since I have written a blog post. This is because I’ve been working on a new project.

Since launching this blog ‘Trade Brains’ in January 2017, I have received a tremendous amount of emails, messages, and calls concerning stock market investment. Most of my readers are facing a similar problem- how to pick a stock to invest from a pile of over 5,500 stocks listed in the Indian stock market.

Though I have helped most of my readers, who have asked this question; however answering the same question, again and again, is little tiresome and mundane. Further, as this is a big topic, it took lots of hours to explain the same to every individual.

That’s why I created this video course on how to select stocks to invest in Indian stock market. Earlier I decided to include this post- ‘3 simple tricks to stock research in India’ in my course module. However, I felt that this content deserves to be publicly available on my blog as it can be quite helpful to the beginners to start stock research in India.

In this post, I will show how you can research good stocks in India to invest in using three simple implementable tricks. So, let’s get started.

3 Simple Tricks to Stock Research in India

1. Money control- Index composition.

If you want to investigate the stocks in a given industry/sector, why not to start with the market index composition of that sector.

An index composition of an industry consists of all the top companies that are included in that index.

For example, if you want to invest in a company in the metal industry, you should first start by investigating the stocks in the market index- S&P BSE Metal or Nifty Metal. Here S&P BSE Metal consists of companies like Hind Zinc, Coal India, Hindalco, Jindal Steel, JSW Steel, NALCO, SAIL, etc.

The index composition will give you a list of companies that you can investigate further in the industry.

Now, there’s a simple way to find out about the index composition of the different industries (Capital Goods, FMCG, Healthcare, Banks, Auto, Energy etc).

Either you can search for ‘money control index composition’ on google and click on the first link.

money control stock research in india 1

This will open the money control index composition page.

money control stock research in india 2

Or, you can directly visit the index composition linked here.

On the same page, you can navigate through different industries to know their composition.

money control stock research in india 3

Further, you can find the same information on NSE India website.

Here are the steps to find the index composition on NSE India:

nse stock research in india 1

  • Change the view to find the composition of the specific index.

nse stock research in india 2

  • Select the industry which you want to investigate.

nse stock research in india 3

Also read: 7 Must Know Websites for Indian Stock Market Investors.

2. Mutual Funds Portfolio:

This is the easiest way for stock research in India. Just look at the portfolio of the top mutual funds and find out its holding stocks.

If the mutual fund is performing good, then the chances are that its top holding stocks will also be doing good.

Check the portfolio of few of the top ranked mutual funds in India and you can get an idea of the portfolio allocation for stock research.

Now, the next question is, where can I check the portfolio of top mutual funds?

The answer is- there are a number of financial websites where you can find the details about the mutual fund portfolio. For example- Value research online, Money Control, Economic times market etc.

However, in this post, I’m going to describe how you can find the portfolio of the mutual funds on money control website.

Here are the steps to find the portfolio of the mutual funds for stock research in India:

  • Go to money control website.
  • Click on ‘Mutual Funds’.

mf holdings stock research in india 1

  • ‘Best Funds to Buy’ page will be opened. Click on ‘complete details’ link.

mf holdings stock research in india 2

  • Select the fund whose portfolio you want to check.

mf holdings stock research in india 3

  • The fund home page will open.

mf holdings stock research in india 4

  • Navigate down and select ‘Holdings’.

mf holdings stock research in india 5

  • Portfolio Holdings will be shown.

mf holdings stock research in india 6

Similarly, you can check the holdings of different mutual funds that you are interested in.

Studying the holdings of the top mutual funds is the simplest way to stock research in India.

In short, if you do not know where to start, which stocks to investigate; then start with investigating the holdings stocks of these top ranked mutual funds.

New to stock market? Here is an amazing book on Indian stock market for beginners which I highly recommend to read: How to Avoid Loss and Earn Consistently in the Stock Market by Prasenjit Paul.

3. Screener:

Url: https://www.screener.in

Screener.in is a stock analysis and screening tool to see information of listed Indian companies in a customizable way.

This is one of the best websites for stock research in India. Screener gives you the facility to screen various stocks based on different criteria like growth, dividend, PE etc.

You can find the list of stocks based on different screens like- ‘The Bull Cartel’, ‘Growth Stocks’, ‘Loss to Profit Companies’, ‘Undervalued growth stocks’, ‘highest dividend yield share’, ‘bluest of the blue chips’ etc.

How to use screener website for stock research in India?

screener stock research in india 1

  • Click on screens on top menu bar.
  • Select the suitable screen according to your preference. For example, if you want to investigate companies with a good quarterly growth, select ‘The Bull Cartel’.

screener stock research in india 2

  • Navigate through the list and investigate the stocks.

screener stock research in india 3

Screener also gives you a facility of Query Builder, where you can customize the query according to your preference. We will discuss more how to write a query in Screener in another post.

Using the screens on the Screener website, you can undergo the stock research in India. Further, the different screens help the investors to investigate different stocks based on their choice.

Also read: How to do Fundamental Analysis on Stocks?

That’s all for this post. I hope these simple tricks for stock research in India is helpful to the readers. Please comment below if you have any doubts. Happy Investing!!

what are fang stocks

What are FANG stocks? And why are they so popular?

Originally coined by Jim Cramer of MSNBC, ‘FANG’ is a group of high performing technology stocks that includes Facebook, Amazon, Netflix, and Google (Alphabet).

While all these companies started as tiny startups just a couple of decades ago, they have rapidly grown into innovation engines and in the process have delivered stellar returns to investors.

Just to put the size of the FANG companies into perspective, as of September 7, 2018, the combined market capitalization of the four companies was USD 2.4 Trillion. This is greater than the market capitalization of all the 30 companies in the SENSEX (USD 2.2 Trillion) put together!

Nowadays, the FANG acronym has multiple versions. Some investors added Apple to the list to coin the term FAANG. Meanwhile, Goldman Sachs created their own acronym, removing Netflix and adding Microsoft to the mix, to form FAAMG, signifying the top 5 tech companies that have been the primary drivers of growth in the US stock market.

Regardless of what you call them, these technology companies have displayed unprecedented growth and have become darlings of investors across the world. Some key facts about the companies:

Facebook

  • Along with its own successful social media platform, Facebook owns Instagram, Whatsapp, and Facebook Messenger. All of these are globally recognized platforms with more than 1 billion users each.
  • Facebook makes the majority of its revenue from advertising. In fact, Facebook, along with Google, is a duopoly in digital advertising. Facebook captures almost 20% of the entire digital advertising spend in the US.
  • The Facebook stock recently lost USD 120 Billion in value primarily due to concerns over data privacy. Despite the stock price hit, Facebook continues to grow its revenue. At the end of 2Q 2018, the company’s revenue grew by 42% to USD 13.2 Billion.

Amazon

  • A global e-commerce player, Amazon recently crossed the coveted USD 1 Trillion market cap mark for the first time.
  • The company has captured 49.1% of the online retail market in the US and is set to post USD 258 Billion in retail revenue in 2018.
  • One of Amazon’s growth drivers is its cloud computing service called Amazon Web Services (AWS). AWS revenues grew by 42% year on year in 2Q 2018 to reach a revenue of more than USD 4 Billion.
  • It also has an internet advertisement business, which is expected to drive significant future growth and achieve USD 16 Billion revenue by 2021.

Also read:

Apple

  • Apple was the first company in the history of the stock market to hit a USD 1 Trillion market cap.
  • It has the market cornered for smartphones. Despite capturing only 18% of the smartphone volume, the iPhone captures about 87% of the profit margin of the entire smartphone industry. This is in stark contrast to Samsung, which captures only about 10% of the industry’s profit.
  • It also has a rapidly developing internet services business that grew at 31% year over year to deliver USD 9.5 Billion in revenue in Q2 2018. An incredible feat for a mature company.

Netflix

  • The first global TV provider and pioneer of the subscription model, Netflix has more than 130 million subscribers worldwide. This large subscription base allows it to spread development cost across its users and thus gain a cost advantage over its competitors.
  • Recently, concerns have been raised over the high debt the company is raising to fuel content development, and also around the increasing number of streaming competitors.
  • In the past several years, Netflix has almost always beaten investors’ growth expectations. However, the next phase of its growth is going to be challenging, it missed growth targets for Q2 2018.

Microsoft

  • Satya Nadella, the CEO of Microsoft, has done a tremendous job in navigating Microsoft through a post-Windows world.
  • Led by its cloud and AI practice, the company’s revenue surpassed USD 100 Billion for the first time, in the fiscal year 2018.
  • In its last earnings release, the company announced that its three core business units reported double-digit revenue growth, with Azure Cloud (its cloud services arm) leading the charge by posting 89% year over year revenue growth.

Google (trades under the name of Alphabet)

  • The leader in digital advertising, Google has captured 90.5% of the search market. Despite its massive size, Google’s revenue continues to grow rapidly.
  • In Q2 2018, revenue was up 26% year on year to reach USD 32.6 Billion.
  • The company enjoys a leadership in AI technologies, largely due to its massive user base and superb ability to capture and utilize big data to train state of the art machine learning models.

Clearly, the FANG/FAANG/FAAMG companies are on their way to revolutionizing how the world interacts with and benefits from technology! 

In order to become a part of this journey and to invest in these companies, visit Vested – It’s a platform that allows you to invest in US-listed companies like Facebook, Amazon, Google etc. in a cheap and simple way.

Why do companies like MRF don’t split the stock

Why Do Companies Like MRF Don’t Split the Stock?

Why do companies like MRF don’t split the stock?

Hi Investors. Have you recently checked the market price of MRF Share? It’s hovering at a whopping price of Rs 74,076 per share. The interesting question here is why the MRF’s management/promoters are not splitting its shares? After all, buying a stock at Rs 74,076 per share is not viable for most of the retail investors.

In this post, we are going to discuss why companies like MRF don’t split the stock. But before we discuss these expensive stocks, let’s first study why companies split their stocks?

Quick Note: If you are do not know what is stock split and bonus shares, then check out this post first- Stock split vs bonus share – Basics of stock market

An interesting study on the big companies that split their stocks:

You might have heard about the wealth creation story of Infosys. A small investment in the 100 shares of Infosys in 1993 would be worth over Rs 6.04 crores by now. (Also read: How to Earn Rs 13,08,672 From Just One Stock?)

In the last 25 years, Infosys has given multiple bonuses and stock splits to its shareholders. And, that’s why the share price of Infosys is still in the affordable purchase rate for the average investors. In fact, if Infosys has not given so many bonuses and splits, the price of one share of Infosys might have been over multiple lacks by now. Here is the bonus and split history of Infosys since 1993:

infosys split

(Source: Moneycontrol)

Besides, Wipro is another common stock with the similar story. Because of its consistent bonuses and splits, the Wipro share is still in the purchase range for the retail investors. Else, if the management had decided not to give any split or bonus, then the share of Wipro might also have been over multiple lakhs and maybe over crores by now.

Also read: Case Study: How 100 shares of WIPRO grew to be over Rs 3.28 crores in 27 years?

Now, the big question is why do companies split share?

Here are four common reasons why companies split their shares-

  1. Stock splits help to make the share price affordable for the retail investors. For example,  if a company is trading at a share price of Rs 3000 and it offers a stock split of 10:1, then it means that its price will drop to Rs 300 per share after the split. Now, which price is more affordable to the public- Rs 3,000 or Rs 300? Obviously, Rs 300.
  2. The stock split makes the stock more liquid and hence increases its trading volume. This is because the total number of outstanding shares increases after the stock split.
  3. Splitting a stock does not affect the financials of a company. Although the outstanding shares of the company will increase after the split, however, the face value will decrease in the same proportion. Overall, stock splits don’t affect the financials and hence the companies are willing to go for it.
  4. As small and retail investors are more interested in affordable shares, stock splits help in increasing their participation and overall helps the companies to build a broadly diversified investor base for their stock.

Overall, in terms of value, the stock split doesn’t matters much as the financials of the company remains the same. However, by splitting the shares- the company is able to keep the shares affordable to the public and hence maintains a wide ownership base.

Then, why few companies not split their shares?

The reasons to split shares might be clear by reading the above paragraph. However, the next big question is why few companies do not split their shares? Why the share price of many stocks in the share market is still in the 5 figures if they have an option to split their stocks.

If you check the current market price of the companies listed on the Indian stock exchange, you can find out that there are many companies whose share price is above Rs 10,000. Here are few of the top ones-

  • MRF (Rs 74,076)
  • Page Industries (Rs 34,652)
  • Rasoi (Rs 30,270)
  • Eicher Motors (Rs 28,870)
  • 3M India (Rs 25,419)
  • Honeywell Automation (Rs 21,937)
  • Bosch (Rs 18,801)

Also read: #12 Companies with Highest Share Price in India (Updated).

All these shares are not easily affordable for the average retail investor. Even the shares of Maruti is trading at a current price of above Rs 9,000. 

Why Do Companies Like MRF Don’t Split the Stock?

Here are few common reasons why few companies do not split their shares-

1. They are already doing good. Why bother to split?

Many of these companies are already good. Then why should they bother to split the share and make it cheap?

For example- MRF was trading at a share price of Rs 12,800 in August 2013. Currently, it is trading at Rs 74,000. The people might have argued that the stock was expensive and not affordable even in 2013. However, it has done pretty well in the last 5 years and given a return of around 7 times to its shareholders.

Why Do Companies Like MRF Don’t Split the Stock

In short, if a company is doing good, they why it should bother to go through the splitting process. It’s already making money for itself and its investor, even when the share price is expensive.

2. Fewer public shareholding

The high share price of a company results in low public shareholding. Retail investors and traders can’t easily enter such stocks. Sometimes, this also helps in decreasing the volatility in the share price. Moreover, by allowing the high share price, the promoters tend to keep the voting right in their hands. This helps in maintaining a static voting right which allows the owners to make key decisions without much interference.

Besides, fewer public shareholding also helps in avoiding the scenarios like creeping acquisition or in worst case hostile takeovers. Expensive stocks discourage acquisition.

3. No financial benefits:

There are no financial benefits while splitting the shares. The value of the stock remains the same after stock splitting (The financial statements and ratios don’t change). That’s why until and unless the promoters have any good enough reason, the share splitting does not appeal much to the management and promoters.

4. Keeps traders and speculators away:

The stock split increases the liquidity and makes the stock affordable. This results in an increase in the participation of the retail investors and traders. And with an increase in the participation, speculation also increases. On the other hand, a high share price helps to keep the traders and speculators away from the stock. Only serious investors are the ones who can find these companies appealing and might want to enter these stocks.

Another benefit of the high share price is that it keeps the newbie investors away from them. As the new investors are mostly attracted towards the affordable companies and are not willing to invest high amount, therefore their participation in quite low in these companies.

5. Symbol of Status and Uniqueness

Do you know that one share of Warren Buffett’s company- Berkshire Hathaway costs around Rs 2.05 crores? Yes, that’s true. The current share price of Berkshire Hathaway Inc. Class A is $3,16,200.00.

A high share price can be sometimes regarded as a symbol of status. Splitting that share means losing this exclusiveness.

Quick Note: If you are new to stocks and confused where to start- here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

Bottom line:

There’s no specific guidelines or rules from SEBI or any stock exchange about a stock split. So, the prices of the shares can go as high as it can and the company is not obliged to offer any split.

As we studied in this post, there are both pros and cons of a high share price. The biggest advantage of a high share price is that it helps to keep the traders and speculators away for that share. Anyways, a company might choose whether it wants to split a share or not- depending on what suits the best for their interests.

That’s all for this post. I hope it was helpful to you. Happy Investing!

pidilite industries

[Case Study] Pidilite Industries: A No-Brainer Stock

[Case Study] Pidilite Industries: A No-brainer stock

General Disclaimer: The stock discussed here is not a recommendation or advisory. This is a quick analysis and there might be much additional information that you need to refer to study the company completely. This case study is only for the educational purpose to teach the practical approach while investigating stocks. Besides, the past performance doesn’t guarantee the future returns. Please research the stock carefully before investing or take the help of a financial advisor.

Company Background:

Fevicol!! I bet you have heard or used this product multiple times in your life. There were many famous advertisements that used to run on our television during the 1990s. Here’s a video compilation (they’re really funny)-

Pidilite Industries is a popular consumer-centric company whose products you might have already frequently used- knowingly or unknowingly. They are the leaders in the adhesive industry and focuses on ease-of-use and value-for-money products.

Few of the popular products of Pidilite Industries are Fevicol Mr, Dr. Fixit, Fevikwik, M-seal, Fevistik, Hobby Ideas, Fevicryl etc.

pidilite industries products

The company started with a single factory that manufactured only one product, Fevicol in 1959. As of today, Pidilite has a diversified product portfolio from adhesives, sealants, waterproofing solutions and construction chemicals to arts & crafts, industrial resins, polymers and more.

As of 2017-18, Pidilite Industries’ top product portfolio consists of 55% in adhesive and sealants, 20% in construction and paint chemicals and 9% in art and craft materials.

pidilite industries products

Source: Pidilite Industries- Annual Report 2017-18

Financials of Pidilite Industries:

If we look at the financials, Pidilite is a financially strong company. Here’s the EPS and book value per share growth trend for the last 5 years (EPS has more than doubled in the last five years).

pidilite industries eps growth

(Quick Note: The financial data has been collected from Pidilite’s Annual report 2017-18)

Next, If we look at the profit before tax (PBT) and PBT as % of net sales (margin), both are showing a positive trend. PBT has also doubled itself in the last five years.

pidilite industries pbt

Further, Pidilite industries is a completely debt-free company for many years. Here’s the debt to equity ratio of Pidilite from 2013-14 to 2017-18.

pidilite industries debt to equity ratio

Besides, if we check the liquidity, we can find that Pidilite industries has high current assets compared to its current liabilities. As of 2017-18, its current ratio is 3 (Quick tip: Current ratio greater than 1 is considered decent)

pidilite industries current ratio

Pidilite Industries last 10 years financial performance-

If we look closely at the last 10 years financial performance of Pidilite industries, we can find a healthy growth trend in sales, operating profit, net profit, and dividends.

The sales and other income of Pidilite Industries has been growing at a compounded annual growth rate (CAGR) of 12.62% for the last 10 years. Besides, the net profit after tax is consistently growing at a splendid CAGR of 23.17% in the same time period. Here is a quick snapshot of the financial performance of Pidilite Industries for the last 10 years.

pidilite industries 10 years performance

Source: Pidilite Annual Report

Valuation: Pidilite Industries is currently trading at a consolidated PE of 57.36 which is a little high. This may be because of its high growth compared to its industry and competitors, that’s why people might be willing to purchase this stock at a premium.

You can learn more about the valuation of stocks on my online course here.

Dividends: Along with growth, Pidilite Industries has also been rewarding its shareholders with healthy dividends per share year-after-year. The company has been maintaining an excellent average dividend payout ratio of 34.74% for the last 5 years. Moreover, the significant point here is a steadily growing dividend over time.

Mar 18

Mar 17

Mar 16

Mar 15

Mar 14

Dividend / Share(Rs.)

6.00

4.75

4.15

2.90

2.70

Source: Moneycontrol

Competitors:

Pidilite is a dominant player in India’s adhesive industry with a market share of ~70% in its leading brand categories (Fevicol,) in the organized segment. Few of the competitors of Pidilite Industries are Tata Chemicals, BASF, BOC India etc.

Competitive advantage:

Here are few key competitive advantages of Pidilite Industries that helps it to remain profitable for the long-term:

  • Strong brand value.
  • Effective advertising and marketing (Fevicol ads have become a viral hit among the masses)
  • Market leaders in adhesives, sealants, polymer emulsions, hobby colors and construction chemicals in India.
  • Loyal customers- (Fevicol has become synonymous with adhesives)
  • Strong R&D center to cater growth and innovations.

Concerns:

Although Pidilite Industries has a strong competitive advantage, however, there are few concerns like over-dependence on Fevicol and M-seal (which alone account for over 50% of the total revenue of Pidilite). This eases the pressure on the sales of other brands and results in reduced investment in other businesses.

Past share performance:

There’s no doubt that Pidilite industries has performed well in that past few decades. And it clearly reflects in its share price. Pidilite has created a wealth of over 1,600% for its shareholders in the last 10 years. Here’s a comparison of Pidilite Industries returns vs BSE benchmark index SENSEX.

Source: TradingView

Bottomline:

From the above analysis, we can conclude that Pidilite Industries in a financially and fundamentally strong company with good ‘moat’ around it.

However, there are a few other aspects that we also need to check before making any investment decision like the company’s management, shareholding pattern, mutual funds holdings, future outlooks etc. For keeping this post simple, I’ve only included a limited study here. Nevertheless, I’ll discuss the remaining aspects in upcoming posts.

Anyways, I believe you would have got a good idea of how to study companies while researching and critical factors to check -through this short analysis.

Final tip- The company’s annual report is the best place to start investigating a stock. If you have noticed, most of the data in this post has been collected from the company’s report. In addition, these reports are more reliable than most financial websites as the company’s annual reports go through a strict scrutiny and audit by both independent auditors and SEBI. In short, start reading the annual reports of the companies.

That’s all for this post. I hope this post is useful to you.

And if you ready, take the #TradeBrainsChallenge- Invest Rs 5,000 in a month. #HappyInvesting.

tata motors vs maruti suzuki case study

Case Study: Tata Motors Vs Maruti Suzuki

Case Study: Tata Motors Vs Maruti Suzuki

Hi there. Welcome to the day 20 of my ’30 days 30 post’ challenge, where I am writing one blog post daily for the 30 consecutive days.

Several of my blog readers have requested me to write an analysis on the real companies using the using different financial tools. That’s why in this post I’ve decided to write a case study on Tata Motors vs Maruti Suzuki.

I have chosen these big and well-known companies to show how the performance of the companies are reflected in their respective share prices. Overall, it’s going to be a very interesting post and there are many key takeaways that you can learn from this case study.

1. Tata Motors

tata motors

Tata Motors is a big multinational automobile company in India. We all have grown up seeing Tata Motors automobiles in our lives. It was originally founded in 1945 and currently, it’s headquartered in Mumbai.

Tata Motors has a diversified portfolio in both commercial and passenger vehicles. Its products include passenger cars, trucks, vans, coaches, buses, sports cars, construction equipment and military vehicles. It has auto manufacturing and assembly plants in Jamshedpur, Pantnagar, Lucknow, Sanand, Dharwad, and Pune in India, as well as in Argentina, South Africa, Great Britain and Thailand.

Few of the popular cars offered by Tata Motors are Indica, Indigo, Zest, Bolt, Hexa, Tiago and Nano. (Recently, Tata Motors announced that it will discontinue the production of 10-years old Tata nano, the world’s cheapest car. Read more here.) Besides, the world famous luxury cars- Jaguar Land Rover (the maker of Jaguar and Land Rover cars) is also a subsidiary of Tata Motor

Overall, Tata motors is a big brand in India with a widely diversified product. So, does this makes tata motors a good investment option? Before deciding anything, let’s first look at a few of the key financials of Tata Motors.

Here’s a quick snapshot of the critical financial ratios of Tata Motors for the last 5 years.

Return on Equity Earnings per share (unadj) Debt/Equity Net Margin Book Value /Share
2017 13.0 26.2 1.0 2.8 201.1
2016 14.8 40.4 0.6 4.3 273.5
2015 25.3 51.1 1.0 5.3 202.0
2014 21.3 51.1 0.7 6.0 239.7
2013 26.3 36.5 0.9 5.2 139

(Source:  EquityMaster)

Damn, the financials of Tata Motors doesn’t looks good!!

Quick note: If you are not familiar with the terms mentioned in the above table, here’s a detailed explanation regarding the important financial ratios.

From the above table, you can notice that the Return on equity (ROE) of Tata Motors has been continuously declining for the last 5 years. Further, the earnings per share are also degrading for the same period. It went down from an EPS of 35.6 in 2013 to 26.2 in 2017.

On the other hand, if you look at the debt/equity ratio, you can find that it’s also fluctuating a lot. As a thumb rule, you should always invest in companies with a debt/equity ratio lower than 0.5 (the best scenario is when the company is debt free). However, for the case of Tata Motors, its debts are equity to quite high.

Moving on, if you look at the net profit margin, here again, you can notice a declining trend. The profit margin of Tata Motors has reduced from 5.2% in 2013 to 2.8 percent in 2017. This clearly is in sync with the declining market share of Tata Motors in the automobile industries. Once, Tata used to be a market leader in the commercial vehicle segment with over 60% customer share. However, these days there are a lot of competitors of Tatas and hence it has lost its monopoly and the profit margin along with it.

The competitive position of Tata Motors is a little complex to access because it works in both commercial and passenger vehicle segment. In the commercial vehicle segment, the key competitors of Tata motors are Ashok Leyland, Bharat Benz, Mahindra and Mahindra, Eicher Motors etc. In the passenger vehicle segments, the key competitors are Maruti Suzuki, Hyundai, Honda, Renault etc.  

If we look from the broader aspect, the Tata Group is doing really good with their prime companies like TCS, Tata Steel, Tata Chemicals, Titan, Tata tea, etc. However, the things are not similar in the case of Tata Motors. Tata Sons Chairman, N Chandrasekaran has been trying to improve the profitability of the company with the help of its MD Guenter Butschek, however, the changes are not reflecting in the financials.  

Although Tata Group has been a pioneer in the growing development of India and they have contributed a lot to India’s economy. However, just having a brand name is not enough to survive (and remain profitable) in this competitive business world.

2. Maruti Suzuki

maruti suzuki

The next company in this case study is Maruti Suzuki.

Maruti Suzuki is a leading automobile company in India. The company is headquartered at New Delhi. It is a 56.21% owned subsidiary of the Japanese car and motorcycle manufacturer Suzuki Motor. As of January 2017, it had a market share of 51% of the Indian passenger car market. Few of the popular products of Maruti Suzuki in India are Ciaz, Ertiga, Wagon R, Alto, Swift, Celerio, Swift Dzire, Baleno and Baleno RS, Omni, Alto 800, Eeco, Ignis etc.

Alto and Swift have been consistently ranked as the top-best selling cars in their respective segment (hatchback). In the last few decades, Maruti has built an amazing brand value in the automobile industry by providing best-affordable products and amazing customer service.

Now, let’s have a look at the financials of Maruti Suzuki for the last 5 years.

Return on Equity Earnings per share (unadj) Debt/Equity Net Margin Book Value /Share
2017 20.3 248.6 0 11.0 1227.3
2016 18.0 182.0 0 9.5 1013.5
2015 14.6 126.0 0 7.5 861.4
2014 13.3 94.4 0 6.4 711.6
2013 13.0 81.7 0 5.6 629.9

(Source: EquityMaster)

What!!! The difference in the financials of Tata Motors and Maruti Suzuki is like night and day.

From the above table, you can notice that how Maruti Suzuki has consistently given excellent performance. For the last 5 years, the return on equity (ROE) of Maruti has been continuously increasing. And in the same period, it’s earning per share (EPS) has increased over 3 times. That’s a real healthy sign of a fundamentally strong company.

Another, magnificent point regarding Maruti Suzuki company is that it’s totally debt free. The debt to equity ratio of Maruti is zero for the last five years.

Next, if you look at the profit margin, its also consistently increasing. From 5.6% in 2003, it has increased to 11% in 2017. This is a pre-eminent profit margin for the companies in the automobile industries.

Lastly, if you look at the book value per share, it’s also showing a healthy growth sign. Maruti’s book value per share has doubled in the last 5 years (from 629.9 in 2013 to over 1227.3 in 2017).

Overall, Maruti Suzuki has performed exceptionally well in this last five years.

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

Conclusion: Tata Motors Vs Maruti Suzuki

In this post, we looked at two big companies with amazing products and a big brand name. However, from our analysis, it is clear that Maruti Suzuki fulfills the criteria of a wonderful company to invest while Tata Motors clearly not.

According to the principles of value investing, the stock price should eventually reflect the performance of the underlying company. As 5 years is a sufficiently long time for this effect to apply, let us look at the price performance of both these companies over the last five years.

tata motors vs maruti suzuki

(Source- TradingView)

The above graph exactly shows what is expected. Maruti Suzuki has performed well better compared to the Tata Motors over the past 5 years. Maruti has increased the share price over 7-fold in this time frame. Whereas, the stock of Tata Motors is trading at a loss of around 10% compared to what it was trading 5 years ago.

Quick Note: If you are new to stock market and want to learn stock market investing from scratch, feel free to check out my online course here.

Bottomline:

From the above case study, you can learn that it’s not a rocket science to analyze stocks.

Selecting a winning stock is not a gambling. The returns from the stocks are in line with the performance of the underlying company. If you treat stock as a company and perform a smart analysis before investing, then I assure that the results will largely be amazing. Value investors simply win over the long time frame.

That’s all for this post. I hope it was useful to you. Happy Investing.

Is it a good strategy to buy one stock of Infosys, HUL & HDFC Bank per month

Is it a Good Strategy to Buy One Stock of Infosys, HUL & HDFC Bank Per Month?

Is it a good strategy to buy one stock of Infosys, HUL & HDFC Bank per month?

Many times it becomes difficult to find the right time to enter a stock? Finding whether the company is undervalued or over-valued can be a tedious job.

Obviously, here we are talking about entering into a fundamentally strong company that has a good track record of past performance and fantastic future growth potential. However, valuation is a significant part of investing and should be given utmost importance while making your investment decision.

In this post, we’ll discuss whether it is a good strategy to buy one stock of Infosys, HUL & HDFC Bank per month?

But, before learning further regarding this strategy, let’s quickly analyze the businesses of these three companies mentioned in this post.

A Quick Study of Infosys, HUL & HDFC Bank:

Infosys: It is a leader in the Information Technology Industry. Infosys is the second-largest Indian IT company by 2017 revenues and 596th largest public company in the world concerning revenue. It provides business consulting, information technology and outsourcing services. Currently, the market capitalization of Infosys is Rs 275,866 Crores and has given an amazing return to its shareholders in the past.

Also read: How to Earn Rs 13,08,672 From Just One Stock?

HUL is a market leader in the personal care industry. It has a substantially strong brand value with products like Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Walls and Pureit.

HDFC Bank– HDFC Bank is India’s leading banking and financial service company. It is India’s largest private sector lender by assets. HDFC Bank provides many products and services which includes Wholesale banking, Retail banking, Treasury, Auto (car) Loans, Two Wheeler Loans, Personal Loans, Loan Against Property and Credit Cards. Read complete analysis of HDFC Bank here.

Disclaimer: This is not a stock recommendation. The examples used here are just to explain the strategy of monthly investing in diversified stocks. Please research the stock carefully before making any investment decision.

hdfc bank

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

Why can this strategy work?

“A good business is not a good investment if you overpay for it” -Warren Buffett.

What Mr. Buffett simply means is that if you buy a wonderful stock at a high valuation, the chances are that it will fall down to reach its real intrinsic value in future. (At a particular time in future, people will realize the stock’s true worth and the price of the stock will fall to reach its intrinsic value.) Therefore, even a good company doesn’t guarantee a good return if you overpay to purchase that stock.

Nevertheless, this problem of entering stocks at their true price can be avoided by purchasing an equal amount of stocks each month. It’s a fitting idea to invest monthly in diversified stocks. It will help you to avoid the dilemma of timing the market. You’ll be purchasing stocks on both the scenarios- whether the market is up or down.

Suppose a stock is going down week after week. Here, you have studied the stock and know that it’s fundamentally strong and capable of giving great returns in the long term. In such scenario, by consistently buying the stocks every month, you are averaging down the purchase price.

Similarly, if the stock is moving upwards every week, then again there can be few possibilities. Either you don’t buy and miss the opportunity of entering an astounding stock. Or purchase that stock at a high valuation. However, if you plan to invest systematically in that stock, you can avoid both these scenarios. You can make your position in the stock alongside reducing your purchase price by averaging down.

Also read: #3 Steps to Turn Your Investment Goals into Reality

Few Drawbacks of buying this strategy:

Like any other investing strategy, even this strategy is not perfect. Here are the few drawbacks of this strategy to buy one stock of Infosys, HUL & HDFC Bank per month:

  • Investing in just three stocks cannot be considered a diversified portfolio. Undoubtedly it is better than investing in only one stock. Nevertheless, if you want to reduce the risk, it’s better to invest in at least 4–5 stocks.
  • You might need to readjust your portfolio in future— Let’s say, one of the stock starts performing exceptionally well compared to the other. Here, the net allocation in that stock will increase significantly, and it might be possible that the distribution of other shares would become too little to affect your overall portfolio. Therefore, here you need to readjust your portfolio (add/sell) in future to make all the stocks equally proportionate to keep your portfolio diversified.
  • Last and biggest drawback- It’s really difficult to implement this strategy. Would you invest monthly in a stock if it’s price is going down consistently for the last one year? The problem is that people start to lose their patience and confidence (with time) in such scenarios.

To make this strategy work, you need to follow this approach strictly.

New to stocks? Confused where to begin?  Here’s an amazing online course for beginners: ‘HOW TO PICK WINNING STOCKS?‘ This course is currently available at a discount. 

Conclusion:

Although investing equal amount monthly in fundamentally strong large-cap stocks seems like a good idea. However, this strategy has few drawbacks as discussed above. Nevertheless, as long as you’re are monitoring your portfolio actively and re-adjusting your portfolio timely, this strategy can help you avoid the problem of timing the market and buying overvalued stocks.

Moreover, this strategy is more useful if you are investing for long-term (+15-20 years). This is because here you have averaged out the extremes (lowest and top-most price) and purchased the stock at a correct averaged price. If the business remains excellent and profitable, this strategy will undoubtedly give great returns to the investors.

Also read: How Many Stocks Should you own for a Diversified Portfolio?

Low PEG Ratio in Indian Stock Market min

17 Companies With Low PEG Ratio in Indian Stock Market.

PEG Ratio in Indian stock market can be a handy indicator to find undervalued stocks with good future growth potential. It is a better alternative to the Price to earnings ratio (PE ratio) to find winning stocks.

In this post, we are going to discuss what is a PEG ratio and how to find good companies using PEG ratio in Indian stock market.

The Problem with PE Ratio.

If you’ve been involved in the market for a while, you might know that PE ratio is one of the most widely used ratios by the financial experts or investors. PE ratio refers to the price to earnings ratio.

It is simply calculated by dividing the price per share of a company with its earnings per share (EPS).

However, the biggest problem with the PE ratio is that it totally ignores the growth prospects of a company.

Here, you might be able to find a good undervalued company. However, if the growth aspect of that company is not bright, then it might not be an amazing investment.

Moreover, many times, finding undervalued companies based on just PE ratio leads to the value trap for the bargain investors.

The value traps are those stocks which are ‘not’ cheap because the market has not realized their true potential or because of some temporary setbacks. These stocks are trading at a cheap valuation because the company has either lost its fire or else its fire is fading away. The investors who buy such stocks just by evaluating its low valuation falls in the value trap.

Read more here— Why Nobody Talks About VALUE TRAP? -The Bargain Hunter Dilemma

What is PEG Ratio?

PEG ratio or Price to Earnings to growth ratio is used to find the value of a stock by taking in consideration company’s earnings growth.

In simple words, PEG Ratio is calculated by dividing PE ratio of a stock by its percentage EPS growth rate.

PEG ratio in Indian stock market shows at what premium the stock price is trading with relative to its earnings growth performance.

For example, suppose the price to earnings ratio (PE ratio) of a company is 20. 

And its earnings growth is 15% per year. 

Then, the PEG ratio for that stock can be calculated by:

PEG ratio= PE ratio/ % Earnings growth= 20/15=1.33

As a thumb rule, companies with lower PEG ratio in Indian stock market should be preferred.

For example, let’s assume there are two companies- Company A and company B in the same industry. if the PEG ratio of company A is 1.5 and PEG ratio of company B is 2.75, then company A should be preferred as it has a lower PEG ratio.

Further, you should always compare the PEG ratio of the companies in the same industry. PEG ratios can vary from industry to industry as the growth rate of one industry may be faster than the other one.

Anyways, a company with less than one PEG ratio in the Indian stock market can be considered decent.

Quick Tip: Never make your investment decision based on just one factor. Although PEG ratio can give you an answer to how cheap or expensive is the stock concerning the rate at which its earnings are presently rising. However, it doesn’t tell you the whole picture of the company.

Also read: #19 Most Important Financial Ratios for Investors

17 COMPANIES WITH LOW PEG RATIO IN INDIAN STOCK MARKET

There are thousands of stock in the Indian stock market. Therefore using PEG ratio to shortlist few good companies to investigate further ones can be a good approach. Here is the list of 17 companies with low PEG ratio in the Indian stock market.

17 COMPANIES WITH LOW PEG RATIO IN INDIAN STOCK MARKET-min

(Source: Screener)

Quick NOTE: I have used an elementary filter to find these stocks. The stocks mentioned above has a market capitalization higher than Rs 50,000 crores and a PEG ratio between zero to 1.5. An important point to highlight here is that the large-cap companies generally have reached saturation and have a lower EPS growth compared to the mid and small-cap companies. However, if you can find a fundamentally strong large cap (which gives decent dividends) with low PEG ratio, then it’s a beautiful scenario for a value investor.

New to stocks? Confused where to begin?  Here’s an amazing online course for beginners: ‘HOW TO PICK WINNING STOCKS?‘ This course is currently available at a discount. 

Conclusion:

PEG ratio is a very powerful tool to find undervalued companies with keeping in mind its growth prospects. Many financial experts consider PEG ratio to be more helpful than PE Ratio and this topic is still controversial.

However, for a smart investor- it doesn’t matters which one is better. The more important lesson here is how to use them to make an intelligent decision!!

Also read: No-Nonsense way to use PE Ratio.

wipro case study- How 100 shares of WIPRO grew to be ovet crores

Case Study: How 100 shares of WIPRO grew to be over Rs 3.28 crores in 27 years?

Case Study: How investment in 100 shares of WIPRO grew to be over Rs 3.28 crores in 27 years?

Indian stock market is filled with the examples of amazing stocks which has created enough wealth for its loyal shareholders to live a long happy life. Last week, we discussed one such stock- the case study of Infosys.

In this post, we are going to discuss the case study of WIPRO- an Indian information technology giant company owned by Azim Premji.

WIPRO Wealth Creation Story:

Assume you bought 100 shares of WIPRO in 1990. At that time, the face value of one stock of WIPRO was Rs 10. For simplicity, we are considering that you bought the stocks at the face value. Hence, your initial investment would have been Rs 1,000.

(Note: Stocks in the Indian stock market rarely trade below their face value. Most of the shares trade at a high premium compared to their face value. However, there has been a number of adjustment in the share price of the company since 1990 because of various bonuses and stock split. Therefore, just for simplicity, we are considering that you purchased the stock at the face value. Moreover, when you compare the appreciated value with the purchase price, you’ll understand that it wouldn’t have made much difference even if you had bought this stock at a little premium.)

Since 1990, WIPRO has given seven bonuses to its shareholders and one stock split (till 2017). Let’s also assume that you didn’t touch the stock after buying. This means that you didn’t sell any stock since the purchase and also avoided any profit booking.

Now, let us analyze the bonuses and stock split of WIPRO for past 27 years.

  • 1990: 100 shares
  • 1992: 200 shares (1:1 bonus on 12-08-1992)
  • 1995: 400 shares (1:1 bonus on 24-02-1995)
  • 1997: 1,200 shares (2:1 bonus on 20-10-1997)
  • 1999: 6,000 shares (5:1 split on 27-09-1999)
  • 2004: 18,000 shares (2:1 bonus on 25-06-2004)
  • 2005: 36,000 shares (1:1 bonus on 22-08-2005)
  • 2010: 60,000 shares (2:3 bonus on 15-06-2010)
  • 2017: 1,20,000 shares (1:1 bonus on 13-06-2017)

(Source: Money Control)

In short, 100 shares of WIPRO bought in 1990 would have turned out to be 1,20,000 share by 2017.

Also read: Stock split vs bonus share – Basics of stock market

Capital Appreciation:

Let’s find out the current worth of the 100 shares that you bought in 1990.

As of May 2018, the market price of one share of Wipro is Rs 273.75

Total Number of share= 1,20,000
Net Value = Rs 273.75 * 1,20,000 = Rs 3,28,50,000.

The net appreciated value would be worth over 3.28 crores.

Your small investment in the 100 shares of WIPRO in 1990 would have turned out to be worth over 3.28 crores in next 27 years.

Don’t forget the dividends…

In the last 27 years, WIPRO has given a decent annual dividend to its shareholders. However, here we are just considering the dividends for the last four years.

Annual dividend per share by WIPRO for last 4 years–

  • 2014: Rs 8.00
  • 2015: Rs 12.00
  • 2016: Rs 6.00
  • 2017: Rs 4.00

Annual dividend received by the shareholders can be calculated using this formula:

Annual dividend received= Dividend per share * Total Number of shares

Assuming that you bought 100 shares of WIPRO in 1990, here are the annual dividends that you would have received:

  • Dividends (2014) = Rs 8 * 60,000 = Rs 4,80,000
  • Dividends (2015) = Rs 12 * 60,000 = Rs 7,20,000
  • And Dividends (2016) = Rs 6 * 60,000 = Rs 3,60,000

Moreover, for the year 2017, the total number of shares in your portfolio would have turned out to be 1,20,000.

Dividends (2017) = Rs 4 * 1,20,000 = Rs 4,80,000

Overall, you would have received dividends worth Rs 4,80,000 in just an year by literally doing nothing.

New to stocks? Confused where to begin?  Here’s an amazing online course for beginners: ‘HOW TO PICK WINNING STOCKS?‘ This course is currently available at a discount. 

The best part…

Even if you don’t sell your stocks, you are holding a total of 1,20,000 shares in your portfolio and hence are eligible to get dividends on all those shares.

Moreover, dividends increase over time. If the company announces a bigger dividend next year, you will receive even a bigger passive income through dividends. In addition, if the company announces any bonuses in future, even your grandchildren lives can be considered as secured 🙂 (kidding!!).

Also read: How ‘Not’ to Kill The Goose That Lays the Golden Eggs?

Conclusion:

Time and again, the stock market has proved that the long-term investment is the real strategy to create huge wealth.

WIPRO is just an example. There are a number of companies in the Indian stock market which has given even a better return compared to WIPRO. For example- Eicher Motors, MRF, Symphony, Page Industries etc. Although it’s little difficult to hold a stock for such long-term and not to book any profit. However, if you are a conservative investor with good patience level, then you can definitely receive amazing returns from your investments.

In the end, here’s a quote by Warren Buffett:

“Our favorite holding period is forever.” 

Also read: How to Earn Rs 13,08,672 From Just One Stock?

How to Earn Rs 13,08,672 From Just One Stock

How to Earn Rs 13,08,672 From Just One Stock?

How to Earn Rs 13,08,672 From Just One Stock?

Have you ever considered getting a deposit of Rs 13,08,672 per year in your bank account by doing nothing?

Yeah. It’s possible.

And in this post, we’ll discuss how a long-term investor can earn over Rs 13,08,672 per year just by purchasing good stocks at a decent price and holding it for a very long time horizon.

Infosys stocks

infosys

Infosys became public in February 1993 and started issuing its shares at Rs 95 per share.

Since then, this company has given seven bonuses and one stock split. In simple words, it means that if you had bought 100 shares of Infosys in 1993, today you would own 51,200 shares.

Now, let us analyze its bonuses & splits for the last 25 years:

1993: 100 shares
1994: 200 shares (1:1 bonus on 30/06/1994)
1997: 400 shares (1:1 bonus on 18/06/1997)
1999: 800 shares (1:1 bonus on 25/01/1999)
1999: 1,600 shares (2:1 split on 30/11/1999)
2004: 6,400 shares (3:1 bonus on 13/4/2004)
2006: 12,800 shares (1:1 bonus on 14/4/2006)
2014: 25,600 shares (1:1 bonus on 10/10/2014)
2015: 51,200 shares (1:1 bonus on 24/4/2015)

Also read: Stock split vs bonus share – Basics of stock market

Capital Appreciation

Suppose you purchased 100 shares in 1993.

Your initial investment would have cost you: 100 shares x Rs 95 = Rs 9,500.

Today, the market price of one share of Infosys is Rs 1,181.

Net Appreciated Worth = Rs 1,181 * 51,200 = Rs 6,04,77,200

Worth over Rs 6.04 Crores today.

Your small investment of Rs 9,500 would be worth over Rs 6.04 Crores in 25 years.

Also read: Why Warren Buffet Suggests- ‘Price Is What You Pay, Value Is What You Get’?

Don’t forget the Dividends…

In the last 25 years, Infosys has given decent dividends to its shareholders. For simplicity, let’s calculate the dividends earned for the last two years only.

For the last two years, here are the annual dividends are given by Infosys to its shareholders:

2016: Rs 24.26
2017: Rs 25.56

Assuming that you bought 100 shares of Infosys in 1993, it would have turned out to be 51,200 shares by now.

Now, let us calculate the annual dividends.

Dividend (2016) = Rs 24.26 * 51,200 = Rs 12,42,112

Dividend (2017) = Rs 25.56 * 51,200 = Rs 13,08,672

Dividends worth Rs 13,08,672 in just an year.

The best part:

Even if you do not sell your shares, you can enjoy the dividends for the rest of your life. Plus capital appreciation on your assets too…

Also read: How ‘Not’ to Kill The Goose That Lays the Golden Eggs?

Conclusion: Invest for the long-term

This is the best example to show you the power of holding good stocks for long term.

Besides Infosys, there are a number of good stocks in the Indian share market which has given even better returns to its shareholder for over decades.

Overall, you can create an amazing wealth if you focus on buying amazing stocks at a decent price and have the patience to hold it for the long term.

Value investing works- may be not in the short term, but definitely in the long-term.

(Source: Infosys Website, Annual Reports, Corporate Announcements, Moneycontrol)

New to stocks? Confused where to begin?  Here’s an amazing online course for beginners: ‘HOW TO PICK WINNING STOCKS?‘ This course is currently available at a discount. 

How IPOs performed in 2017? A Quick Analysis.

A quick analysis on how IPOs performed in 2017:

2017 was a big year for IPOs. There were a number of mega-buster IPO’s that launched in 2017 like BSE, CDSL, Avenue Supermarket, SBI Life Insurance etc.

Here is the quick summary of the IPOs that got listed in 2017:

Total No of IPO’s in 2017 = 38
Total amount raised = 75,475.37 crores

The number of IPOs listed in 2017 was highest compared to the last 5 years, in which none of the previous 5 years crossed over 30 IPOs in a year (please refer the below chart).

Although it might be a little early to decide the performance of IPOs who got listed in the year 2018, as many of them who got listed on/after August or September, aren’t even six months old in the market.

And from the long-term investor’s point of view, it might be too early to evaluate their true potential.

However, the last year 2017 was amazing for the equity. Even the benchmark Index Sensex and nifty gave over 27% returns (to be exact, nifty gave a return of 28.6%). And even if in that bull run, some IPOs got beaten up badly, then it might be worth ‘re-considering’ for the long-term investment.

Also read: Is it worth investing in IPOs?

How IPOs performed in 2017?

Before you look at the list of the IPOs, there are two points worth noting:

  1. The change is compared to the listing price (not the offered price).
  2. Different IPOs got listed at the different time of the year. So, we cannot compare their returns (as different listing date). For example, if an IPO got listed in January, it returns will be totally different than that of the another that got listed in November or December.

Here is the list of top performers of the IPOs that got listed last year.

ipo performance top performers 2017

And here is the list of the bottom performers in 2017:

ipo performance bottom performers 2017

(Source: IndiaInfoLine)

Conclusion:

Out of 38 IPOs listed last year, only 10 IPOs gave a return of over 20%. Nevertheless, as discussed above, the majority of this IPOs are not even a year old and hence, it’s too soon to comment on their returns since listing.

Moreover, some of the IPO’s that got listed in the year 2017 has given over 100% return within a year. For example: Apex frozen (+287.13%), Shankara Build (+225.4%), Avenue Supermarket- Dmart (+96.29%) etc.

On the other hand, there were few ‘big IPOs‘ which failed miserably last year, even when the market gave a return of over 27%. For example: S Chand & Company (-33.52%), Bharat Road -13.13, SBI Life Insurance (-6.01), Khadim India (-3.58%) etc.

Overall, if you are planning to invest in the IPOs the key point is still the same. Focus more on ‘quality’ over the ‘hype created by the media’.

If the listing price seems to be ‘over-valued’, then wait for it to correct. It’s not necessary to buy the stock only at the IPO, you can even buy the stock after it enters the market.

Also read: Top upcoming IPOs of 2018: NSE, ReNew Power, HAL and more

I hope this post is useful to the readers. #HappyInvesting.