The BSE Sensex hit a low of 52,258 on March 9, 2022. Since then the market has climbed nearly 7,000 points.
The Indian market is gaining traction due to various reasons. Factors such as India’s strong corporate health, green energy transition, PLI scheme and promoter’s confidence about the company’s prospects are boosting investor confidence in the economy.
In addition, an upbeat stock market is attracting new investors. The number of demat accounts has more than doubled to 77 million from 36 million March 2019 to November 2021.
Millions of young people have entered the market as first-time investors since the pandemic-induced lockdown and the culture of work from home began.
Every year, a constant stream of new people enter the stock market.
However, due to the lack of sound knowledge and the growing nuisance of social media, many market players get stuck in questionable investments.
Investors should hold stocks for the long term and do their research to avoid such irrational investments.
How to value stocks for the long term?
The stock market is full of unpredictability. However, some tried and tested concepts can help investors and increase their chances of long-term success.
Return on Equity (ROE): ROE is the measure of a company’s net income divided by its shareholders’ equity.
It is useful in demonstrating how much money a firm can make from the money invested by the shareholders. It examines the profitability of the firm and helps determine whether the company is profitable or operating inefficiently.
Financial Statement of the Company: Stakeholders of a company rely heavily on financial statements to understand its functioning.
A company’s financial statements provide an accurate picture of its success. They show both earnings and losses as well as assets and liabilities.
These statements also show the managerial effectiveness of a firm. How well a company is performing depends on its profitability, which these statements show.
sound management: Building a strong management team is an important component of running a successful business.
A firm is only as good as the people who manage it. management quality check This includes conducting background checks on the individuals in charge of the business.
Here is the list of shares based on the above parameters.
1. Infosys
Infosys is an Indian multinational information technology company that provides business consultancy, information technology and outsourcing services.
Infosys is the second largest Indian IT company after Tata Consultancy Services (TCS).
Salil Parekh is currently the CEO of Infosys. Prior to joining Infosys, he was a part of leading IT company named ‘Capgemini’ for more than 25 years.
Today the largecap IT company is recognized as a highly innovative software services global company because of NR Narayana Murthy.
Mr. Murthy is the veteran co-founder and retired chairman of Indian tech giant Infosys, in which he remains a minority stake.
Infosys is ranked second overall in the list of ‘Most Respected Companies’, behind only Google India and ahead of TCS. In an overall ranking of 55 organisations, Infosys was ranked second in terms of quality and depth of senior management, people practice and talent management.
On the financial front, the company is virtually debt free. Also, it maintains a good track record for Return on Equity (ROE). The three-year average ROE is 25.4%, while the firm’s current ROE is 25.6%.
In the recent quarter, the Pune-based IT firm reported 12% YoY (YoY) growth in net profit 56.7 billion This gave the highest annual growth in a decade.
Further, the IT major has guided for revenue growth of 13-15% YoY in constant currency for FY2023, while it has guided for operating margin of 21-23% for FY20.
Infosys grew revenue faster than its larger rival TCS for the third year in a row, a trend that is likely to continue in the near term as it aims to become the IT bellwether of the country again.
In addition, the company is maintaining a healthy dividend payout of 54.6%.
In the last one year so far, Infosys shares have gained about 24 per cent in view of yesterday’s closing price. shares stood nearby 1,425 each in April last year.
2. Hindustan Unilever
Hindustan Unilever (HUL) is a consumer goods company headquartered in Mumbai. It is a subsidiary of a British company Unilever.
Its products include foods, beverages, cleaning agents, personal care products, water purifiers and other fast-moving consumer goods.
The company has manufacturing facilities across the country and mainly sells in India.
Sanjiv Mehta is an Indian business executive, and chairman and managing director (MD) of Hindustan Unilever, India’s largest fast moving consumer goods (FMCG) company. Mehta is also a member of its global executive board Unilever Leadership Executive.
HUL has been a market leader in most personal care categories for decades, Mehta’s pursuit of innovation has helped it maintain its position at the top.
The company has delivered decent profit growth of 16% over the last five years and maintained a healthy dividend payout of 92.5%.
3. Kotak Mahindra Bank
Kotak Mahindra Bank is a diversified financial services conglomerate that offers a wide range of banking and financial services across India.
Uday Suresh Kotak, an Indian billionaire banker, is the Executive Vice President and Managing Director of Kotak Mahindra Bank.
Presently, the bank is the fourth largest bank in India and the third largest private bank in terms of market capitalisation.
Kotak Group has the best organizational structure in the banking business, and is managed by an exceptional team of industry experts with ample experience.
The company’s ROE is 11.8%.
On the financial front, Kotak Mahindra Bank’s standalone net profit grew 15% in the quarter ended December 2021 on account of sharp credit growth from retail and also helped by better asset quality, resulting in return of provisions during the quarter. Over the past 5 years, revenue has grown at an annual rate of 15.2%, while net income has grown at an annual rate of 23.6%.
HUL also provides good dividend which has declared dividend continuously for the last 5 years.
4. Tata Consumer Products
Another FMCG company from the list is Tata Consumer Products.
Tata Consumer Products is one of the leading Tata Group companies with a presence in the food and beverage business in India and internationally. It is the second largest tea company globally and has significant market presence and leadership in many markets.
Tata Consumer also owns Starbucks in India.
Being a part of the Tata Group, the company is in a very good position in terms of institutional framework.
Presently, Mr. Sunil D’Souza is heading Tata Consumer Products. Prior to this, he served as the Managing Director of Whirlpool India for four years and is credited with turning Whirlpool into a remarkable growth story in India.
With over 29 years of rich experience, it is expected that Mr. D’Souza will drive major changes in the company’s operations going forward, which will ultimately help Tata Consumer become India’s top FMCG company.
Currently, the company’s ROE is very low at 6.8 per cent.
However, the company has delivered decent profit growth of 151.4% Compounded Annual Growth Rate (CAGR) in the last 5 years.
For the quarter December 2021, the company reported a growth of 22.19% in its consolidated net profit 2.9 billion for the third quarter ended 31 December 2021. The company posted a net profit of 2.4 billion in the same quarter last year.
In addition, two weeks ago, Tata Consumer Products announced the merger of all Tata Coffee businesses as part of a restructuring plan in line with its strategic priority to unlock synergies and efficiencies.
Ever since the news, the FMCG giant has been creating a lot of buzz in the market. In the last one month, the company has been able to give returns of 13% to its investors.
Talking about the Tata group, the Tata group companies are the most preferred brands among the people of India in the last few decades.
Tata has always developed products that are sensitive to the needs of the Indian consumers and hence people trust it more than any other competing brands.
It is important to note that Tata has provided consumers with a service or solution that is both affordable and viable.
Bottom-line
One of the most essential characteristics of a stock is consistency. Many firms may deliver good results, i.e., outperform the benchmark index in specific market conditions, but many smaller and weaker firms may not be able to recover from this volatile market churn.
Therefore, it becomes necessary to check some factors before investing in any stock.
Solid balance sheet, high return on equity, good management team and good cash flow are some of the defining quality characteristics in the company.
This will eventually be reflected in the rising share price, so quality equity should be included in any long term investment portfolio,
Quality investing, like all investments, requires a combination of ‘qual’ and ‘quant’ to find stocks capable of delivering reasonable returns to their shareholders.
Before placing your full trust in a firm, you should conduct extensive research, assess the fundamentals of the stock, and determine whether it fits into your portfolio before holding a stock.
Happy investment!
Disclaimer: This article is for informational purposes only. This is not a stock recommendation and should not be treated as such.
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