I am not an expert but let me explain you the process what I am following. Download this file for reference. I have referred a book Art of stock investing, by Manikandan of bse2nse website. Sincere thanks to him for showing some guidelines how to invest.
I have spent some time in collecting the information on CNX500 stocks from moneycontrol website, only few parameters which I could use to filter out the stocks. This information is huge and I could not paste here in tradingqna. Hence I have created an external link (shared below)
Identifying the right stock from the generic stock pool could be tricky and cumbersome. But identifying a bad stock will be pretty easier. Hence I follow an elimination process by which I eliminate most of the stocks leaving the ones which I need to study further in depth.
I choose only four parameters of the company as an initial filter. These parameters are collected for past 6 years (whichever available).
- Total Debt
- Closing cash and cash equivalents
- Annual/Yearly profits - Net profit/loss for the year
- Percentage of promoter shares which are pledged
You should analyze all these four parameters and eliminate almost around 450 stocks out of this 500. The points what you need to consider while eliminating are given below.
- For me a company with zero debt, is a green signal right away. A company with consistent zero debt or negligible debt for past 6 years, is a ready pick.
- A company with debt levels in multiple times of its yearly profits has to be dealt with caution. If you see the profits are line with debts, that the company can pay off the debts in few years say 3 years time, then filter the company for further screening.
- If the debts are huge you can filter the company out (in addition to checking the other three parameters below, to arrive at a conclusion for elimination)
- A decreasing trend in Debts for past 6 years is a good sign.
Closing Cash and Cash Equivalents Cash and its equivalents are used for expenses which are related to the expansion/growth of the company, investments to buy other subsidiaries etc., A company with good amount of cash equivalent will likely to prosper as they are focusing on the growth.
- Having a good amount of cash is good for a company.
- If you have similar companies with same debt levels (zero or neglible debt) and similar profits (in percentage of its market cap), you can consider the company with higher cash equivalent as a better choice.
Net profit or loss for the period This is a very important parameter on which many stocks will fail and good companies will stand out.
- As per me, a company with negative results in any of the past 6 years is a NO GO. Eliminate them right away. If the company has incurred loss in far past and has proven good in recent past, check other parameters before filtering it out.
- An increasing trend in profits is a good sign. You can pick those stocks.
- A little flat trend or consistent performance is good as long as other parameters are good, otherwise those stocks are also to be scraped off. (If you fit a straight line for those 6 years and you get a negative inclination, exercise that stock with caution)
- If the performance is very inconsistent, say the profits are varying widely, exercise caution with that stock since the next upcoming year would be one of its lower performances. In other words the profits should have a narrow range for flat trend stocks.
Percentage of promoter shares pledged Promoters are the key people in the company. They pledge their shares only in case of bad situation of the company.
- If the promoter shares are pledged in huge quantity, stay away from that stock. If the % of pledged shares is in single digit, keep that stock for further study, otherwise reject it.
- If other parameters are good and promoter shares are pledged, try to study why the shares are pledged.
After shortlisting the companies, you should check for the following to filter further.
- What is the Brand value of this company?
- What businesses they are in or what products they make?
- Who are their competitors? Do they dominate their field?
- What is the P/E ratio?
- Check out the trend of stock price for last 6 years, (dont forget to compensate for splits and dividends, otherwise data may look bizarre, showing sudden drops during splits)
P:S: For Banking and Energy Sectors, Total Debt will usually be very high, so do not filter those stock out purely based on debts. You should check for other paramters too.
Also, Karthik has provided a wonderful explanation on Fundamental analysis on Zerodha varsity. If time permits please go through that.
Investing requires you to buy and hold a stock based on Fundamental Analysis. You can read about it here - http://zerodha.com/varsity/module/fundamental-analysis/
It is the same way that u use to identify the right boy/girl to marry.
Reiterating what i had mentioned in some query before, It involves creation of two kundlis:
1)Long term kundli 2)Short term kundli.
Long term kundli involves study of Fundamentals of the company, Astrological aspect of the company.
Short term kundli involves study of Quantitative Study(Price movement patterns, Volume/Price relation, Pivot etc) and Technical Analysis.
Based on what type of kundli you create and choose, your kundli can change :-))
See, there are many factors one need to consider before buying any stock.
- Amount of cash/fund in your trading account
- Your risk appetite
- Your holding time/period
- Whether you want only stock or you are looking into dividends offered by the company
- Are you looking at trading or long term investment
- The Sector/Domain that you are looking at to invest like IT, Infrastructure, Steel, Motors, FMCG etc.
I think, you can blindly go for any 'A' company/stock which constitute NIFTY50
I Want to Invest Rs 10,000 for atleast ten years
I will not go for STOCK EXCHANGE
KINDLY DO TELL ME THE WAY I CAN GO TO, WITH MAXIMUM RETURNS, AS COMPARED TO BANK FIXED DEPOSIT
EITHER MUTUAL FUND OR EQUITY SHARE
IF YES THEN WHAT IS THE PROCEDURE OF GOING FOR IT
lEVEL OF RISK
Equity shares would be a good choice.
In ten years you may get stock splits and bonuses and if you invest in the right stock, it may become multibagger.
Although you need to do some kind of study before choosing the right stock.
I think, you can blindly go for any ‘A’ company/stock which constitute NIFTY50
Are you sure about this sudesh?
Some of the stocks like DLF was 1200 way back in 2008 but succumbed to the value of 100 rupees recently.
Please correct me if I am wrong!
Haven’t really tracked DLF but, how about RIL, INFY, ITC, TataMotors, TCS
Agreed, most of the Nifty 50 stocks do good, but not all.
Agreed. Cash in hand to invest and intended duration to hold the stock decides the method to chose stocks. Personally I bank on banking sector and recent splits in SBIN and AXISBANK etc could be a good bet.