The task of identifying fundamentally strong stocks in India gains significant importance when we consider the vast array of options available. With approximately 5,311 companies listed on the BSE and 2,113 companies on the NSE, as indicated by data from their respective official websites, the need for a discerning approach becomes paramount. Determining the portion of Fundamentally Strong Stocks in our portfolio is a strategic decision that depends on individual investment goals, risk tolerance, and market conditions. Generally, financial experts recommend allocating a significant portion of the portfolio, often around 60-70%, to fundamentally strong stocks.
What are fundamentally strong stocks?
Fundamentally strong stocks are like shares in really good businesses that are built to last and grow over time. Just like a strong foundation for a house keeps it sturdy, these stocks have solid foundations too. Think about a championship-winning sports team, like a soccer team. What makes them stand out and consistently perform well? It’s not just the star players or the flashy moves they make during matches. It’s the solid foundation they’ve built through rigorous training, teamwork, and strategy.
In the same way, a portfolio of fundamentally strong stocks in India serves as the backbone of investment strategy. These stocks are like the reliable players in a team – they have strong financials, a history of growth, and a competitive advantage. Just as a soccer team needs players who can hold their ground and work together, your portfolio needs stocks that can weather market fluctuations and contribute to its overall performance.
Top Fundamentally Strong stocks in India
The top fundamentally Strong stocks in India are: Asian Paints Ltd, Polycab India Ltd, Tata Motors Ltd, Coal India Ltd, ITC Ltd, Deepak Nitrite Ltd, Cipla Ltd, JSW Steel Ltd, Hindustan Unilever Ltd, Hindustan Zinc Ltd, Apar Industries Ltd, Tata Consultancy Services Ltd, Infosys Ltd, Shree Digvijay Cement Co. Ltd, Titan Company Ltd.
Let’s have a look at the fundamentals of some of these stocks
Polycab India Ltd
With a Market Capitalization of approximately ₹12,44,974 Cr, the company’s size in the market becomes apparent. The Stock Price-to-Earnings (P/E) Ratio of 28.4 which is lower than its sector PE ratio of 77.4 signifies the valuation placed on each unit of earnings generated. A Dividend Yield of 1.42% indicates the return on investment in the form of dividends.
Demonstrating efficient capital utilization, the Return on Capital Employed (ROCE) stands at an impressive 59.1%. Furthermore, the Return on Equity (ROE) of 46.9% underscores the profitability derived from shareholder investments. A Debt to Equity Ratio of 0.09 portrays the company’s prudent approach to financial leverage. Lastly, the Trailing Twelve Months (TTM) Earnings Per Share (EPS) of ₹30.26 reflects the company’s profitability per outstanding share.
Hindustan Zinc Ltd
With a Market Capitalization of ₹1,33,943 Cr, the company’s overall valuation in the market is evident. The Stock Price-to-Earnings (P/E) Ratio of 14.2 is notably lower than its sector’s P/E ratio of 32.3, indicating potential undervaluation. A striking Dividend Yield of 23.8% suggests a significant return on investment through dividends.
The Return on Capital Employed (ROCE) at 50.4% reflects effective capital utilization. Additionally, the Return on Equity (ROE) of 44.5% underscores proficient profitability in relation to shareholder equity. The Debt to Equity Ratio of 0.92 implies a balanced level of financial leveraging. Lastly, the Earnings Per Share (EPS) of 22.24 signifies the company’s earnings per outstanding share.
Apar Industries Ltd
With a Market Capitalization of ₹19,058 Cr, the company’s overall market valuation is apparent. The Stock Price-to-Earnings (P/E) Ratio of 26.7 is notably lower than its sector’s P/E ratio of 77.4, possibly indicating an undervalued position. Despite a modest Dividend Yield of 0.80%, potential returns from dividends are considered.
The Return on Capital Employed (ROCE) at 51.1% reflects effective utilization of capital. Furthermore, the Return on Equity (ROE) of 32.3% signifies commendable profitability relative to shareholder equity. A favorable Debt to Equity Ratio of 0.17 indicates prudent financial leverage. Lastly, the Earnings Per Share (EPS) of 186.24 reflects the company’s earnings per outstanding share.
Tata Consultancy Services Ltd
With a substantial Market Capitalization of ₹12,44,699 Cr, the company’s overall value in the market is evident. The Stock Price-to-Earnings (P/E) Ratio of 28.4 is significantly lower than its sector’s P/E ratio of 61.5, indicating possible undervaluation. Despite a modest Dividend Yield of 1.42%, the potential for returns through dividends is noteworthy.
A robust Return on Capital Employed (ROCE) at 59.1% reflects the efficient use of invested capital. Moreover, the Return on Equity (ROE) of 46.9% underscores commendable profitability concerning shareholder equity. The Debt to Equity Ratio of 0.09 signifies a balanced approach to financial leverage. Lastly, the Earnings Per Share (EPS) of 119.54 highlights the company’s earnings per outstanding share.
Shree Digvijay Cement Co. Ltd
With a Market Capitalization of ₹1,385 Cr, the company’s overall market valuation becomes apparent. The Stock Price-to-Earnings (P/E) Ratio of 24.0 is notably lower than its sector’s P/E ratio of 50.3, suggesting potential undervaluation. Despite a modest Dividend Yield of 4.21%, the possibility of returns through dividends holds significance.
The Return on Capital Employed (ROCE) at 22.7% indicates effective utilization of invested capital. Additionally, the Return on Equity (ROE) of 18.1% underscores commendable profitability concerning shareholder equity. The Debt to Equity Ratio of 0.00 reflects a favorable financial position with minimal reliance on debt. Lastly, the Earnings Per Share (EPS) of 3.99 highlights the company’s earnings per outstanding share.
Also read: Zomato Fundamental Analysis: The Business Buffet
Fundamentals of Stocks
| Company's Name | Market Cap | ROCE | ROE | Debt to equity | Profit Growth (3 Years CAGR) | Stock Price (3 Years CAGR) | Sales Growth (3 Years CAGR) |
|---|---|---|---|---|---|---|---|
| Asian Paints Ltd | ₹ 3,14,013 Cr. | 35.2 % | 27.7 % | 0.12 | 15% | 20% | 20% |
| Polycab India Ltd | ₹ 76,196 Cr. | 27.1 % | 20.0 % | 0.04 | 18% | 78% | 17% |
| Tata Motors Ltd | ₹ 2,22,229 Cr. | 6.14 % | 5.62 % | 2.96 | 31% | 62% | 10% |
| Coal India Ltd | ₹ 1,41,774 Cr. | 71.4 % | 56.0 % | 0.08 | 19% | 19% | 13% |
| Deepak Nitrite Ltd | ₹ 30,086 Cr. | 29.7 % | 22.7 % | 0.02 | 11% | 48% | 24% |
| ITC Ltd | ₹ 5,49,715 Cr. | 39.2 % | 29.1 % | 0.00 | 7% | 32% | 13% |
| Cipla Ltd | ₹ 99,114 Cr. | 18.2 % | 12.8 % | 0.03 | 26% | 20% | 10% |
| JSW Steel Ltd | ₹ 1,90,477 Cr. | 8.41 % | 5.64 % | 1.23 | -6% | 43% | 31% |
| Hindustan Unilever Ltd | ₹ 5,90,922 Cr. | 26.6 % | 20.5 % | 0.02 | 14% | 6% | 15% |
| Hindustan Zinc Ltd | ₹ 1,34,598 Cr. | 50.4 % | 44.5 % | 0.92 | 16% | 12% | 22% |
| Apar Industries Ltd | ₹ 19,129 Cr. | 51.1 % | 32.3 % | 0.17 | 68% | 149% | 25% |
| Tata Consultancy Services Ltd | ₹ 12,44,809 Cr. | 59.1 % | 46.9 % | 0.09 | 9% | 15% | 13% |
| Infosys Ltd | ₹ 5,98,378 Cr. | 40.7 % | 31.8 % | 0.11 | 13% | 16% | 17% |
| Shree Digvijay Cement Co. Ltd | ₹ 1,390 Cr. | 22.7 % | 18.1 % | 0.00 | 1% | 26% | 16% |
| Titan Company Ltd | ₹ 2,76,470 Cr. | 25.1 % | 30.8 % | 0.79 | 30% | 41% | 24% |
The data presented is reflective of the information available up to August 30th, 2023, and has been diligently compiled from the annual reports of each respective company.
How to Identify fundamentally strong stocks in India?
Here are some easy-to-understand traits of fundamentally strong stocks in India:
Healthy Finances: Imagine checking if your friend is good with money before lending them some. Similarly, these stocks have a track record of managing their money well. They make more money than they spend, which is a good sign.
Growth Potential: Just like a young plant can grow into a big tree, strong stocks have the potential to grow their business and profits. They might be in growing industries or have innovative ideas.
Strong Leadership: Think of a sports team with a great captain. Similarly, strong stocks are led by smart and capable leaders who make good decisions for the company.
Customer Love: If you love a certain brand and buy their stuff, that company might be a strong stock. Strong stocks have loyal customers who keep buying their products or services.
Competition Edge: Imagine a pizza place making the best pizza in town. Similarly, strong stocks have something special that makes them stand out from other companies. It could be a unique product or a great service.
Consistency: Just like your favorite TV show is consistently entertaining, strong stocks consistently make profits year after year. This shows that they’re reliable.
Not Too Much Debt: Imagine owing a lot of money to friends – that’s not good. Similarly, strong stocks don’t have too much debt because it can weigh them down.
Market Demand: Think about the latest trend everyone’s excited about. Strong stocks often tap into trends and offer what people really want.
Bottom Line- Fundamentally Strong stocks in India
Imagine the star players as the exciting, high-risk investments that might bring big wins but also carry higher uncertainties. These players are valuable, but it’s the foundation of fundamentally strong stocks that provides stability and consistency to your portfolio’s performance. This approach helps balance risk and reward, much like a sports team balances its star players with dependable team members.
Just as a sports team’s foundation influences its ability to win games and championships, the strength of your portfolio’s foundation influences its potential for long-term growth and success. So, when building your investment “team,” remember the value of a strong foundation formed by fundamentally strong stocks.
Disclaimer
The blog is meant for informational purposes and serves the general analysis of the stocks. Contents provided here are based on careful research and analysis utilizing the fundamental and technical indicators over a period of time. The post does not consist any direct recommendation about Investing or trading in the securities market. Thorough research and careful consideration are necessary for individuals to fulfill their personal responsibility in making financial decisions. Seeking professional advice before making any financial decisions is always advisable.
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