How to choose stocks for long term investment in India?
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- Updated On:26-May-2021
- Replies:2
Short Answer
There are various terms that play a huge role in determining how to choose stocks for long term investment such as P/E ratio, dividend consistency, etc. For a more elaborative information head below and read the explanation given for better understanding.
Detailed Answer
INVESTING AND ITS TYPES:
By investing, in general terms, it means allocating and depositing your money in a particular place from where you can expect to get benefited in the near future. There will always be an expectation of return whenever and wherever you invest which can help her/him to gain financial worth.
An individual can invest in various sectors such as: Bank fixed deposit, Direct equity, debt mutual fund, stock market, crypto currency, etc.
There are two main types of it:
- Short term investing: This investing lasts for a very short duration of time i.e., from hours to days. It is very risky and requires market knowledge and requires knowledge about technical analysis.
-Long term investing: This investing usually happens when individuals want to make money in long term. It requires a lot of patience from the depositors and also long run study about the companies they are planning to invest in.
INVESTING IN STOCKS:
Investing in stocks gives an individual a part of ownership in the company where they are depositing their money. Stocks is something which gives highest returns to individuals when they invest money but at the same time it is very risky, requires knowledge about the market and the company to maintain profits.
This requires the brokers or the individuals to have good analytical skills so that they can technically and fundamentally analyze the company before investing else he/she might end up loosing quite a lot of money.
IMPORTANCE OF LONG-TERM INVESTMENT:
Long term investing is something which gives the individuals or investors a clean and clear opportunity to make money without high risks. This is something which requires patience and discipline from them so that they can take enjoy all the perks by earning higher profits.
It is not essential that the invested money will grow everyday but can turn out to be best investments in long run.
HOW TO CHOOSE STOCKS FOR LONG-TERM INVESTMENT?
There are various features which are taken into consideration while picking a perfect stock for long-term investment:
1. To understand the economic conditions:
It is very important to understand the economic conditions of the country as it directly effects the stock market. Stock market does not rapidly change depending upon the financial scenario, but it does shows change as per the advancement or recession of the nation.
2. Assessing the P/E ratio:
The price/earning ratio helps in determining if the stock is under or overvalued. Higher P/E ratio is considered better, and it also helps investors to decide if they want to invest in that particular stock or not and the low P/E value does the opposite. To understand if the stock is actually valued at a good price or not, the P/E of company is compared with the P/E of that sector.
3. Dividend consistency:
The consistency of the payment from the company where the individual invested in stocks is what can assure him/her of the stability of the company. There are various timelines for which this will matter as regular dividends will help in understanding the constant stability of the company.
SOME STOCKS TO INVEST IN FOR LONG-TERM:
This is strictly just a recommendation and is for information purpose only as per March 2021.
- HDFC Bank
- Kotak Mahindra Bank
- Hindustan Unilever (HUL)
- State bank of India (SBI)
- Tata Consultancy services limited.
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Discussion (1)
One can either invest in bluechip companies or research extensively on the companies they feel would give returns. It also comes down to the type of investment they are ready to make. Hence, figuring out the different companies could take time, experience, and research.
Government securities include both T-Bills (Treasury Bills) and Government bonds which are both short and long-term instruments issued by the Central & State governments for various purposes. Retail investors are allowed to invest in G-Secs provided by the RBI. One can buy them directly from the Stock exchanges in a non-competitive method.
For significant returns, one can look forward towards stock funds, real estate investments, dividend stocks, target-date funds and so on. Each one of these investments does offer something better to investors based on their capital of investments made.
There are about 89.7 million active demat accounts as of 31st March 2022, i.e., about 5-6 percent of Indians invest in stock market. Let's gather some more details on the percentage of Indians actually putting their money in the share market.
Every Equity Investor should maintain some part of their portfolio diversified into foreign companies. This can be achieved through Foreign brokers or Mutual Funds and ETFs that invest in abroad markets. Investing abroad has many benefits such as exposure to the top global companies like Facebook, Amazon, Ford, etc. The tax implications on investments made outside India are different as foreign Equity is taxed as Debt Mutual Funds
Yes, a foreigner can invest in India only thorough government-regulated channels. Let's learn about some of the investment alternatives.
Zerodha Kite allows you to sell shares either at market order or by placing stop loss. The order will be executed at the best available price.
There are many stocks of companies that could be invested in. For example, companies doing good in the FMCG sector, Healthcare sector, Banking sector, Consumer product sector could be invested in. these are just a few as plenty other companies could be invested in based on your requirements and strategy for investing.
You can definitely trade or invest Rs 100 in Indian stock markets. There are no monetary requirements to enter the stock market hence you can buy any share that is trading under Rs 100. Apart from direct stock investing/ trading, there are some indirect ways to own shares over Rs 100. This can be done through Mutual Funds.
Intraday trading is more risky and challenging when compared to long-term investing. Is it not a preferred option for beginners as it requires considerable capital, expertise, adequate knowledge about trading, and multiple other factors. For beginners, the best way is to deploy the majority of your capital towards long-term investments and use the remaining for hedging or short-term trading.
Harshil Patel
No one can predict the future. But based on past financials, growth projections and future growth, investing in stocks in the long term is quite the possibility. However, if you look at the ways, then conducting a thorough fundamental analysis of the company should help long-term investment.