Stock Picking Guide For Beginners: How To Select Shares To Buy In India?

Stock market investments can provide significant returns if you make well-researched prudent investing decisions. Investors should focus on increasing their knowledge rather than following a few recommendations from any known person or friends. If you are afraid to take the next step toward stock investing, here is the guide to buying the right shares in India to avoid losses and for consistent returns.

How to Select Shares to Buy in India 

You can invest in the stocks with your demat account by following these strategies:

• Look for Companies with Good Fundamentals

Investors need to drill to find a fundamentally strong company. It helps to investigate and invest in financially prosperous corporations with noteworthy growth prospects. Check the company’s record of past performance. Investors need to look into the financial ratios of the company. 

• Increased Earnings Per Share (EPS) for the previous five years. 
• A lower Price Earnings Ratio (PE) than the industry average and peers. 
• A lower Price to Book Ratio (PBV) than the industry average and peers. 
• There should be Debt to Equity Ratio of less than one.
• The Return on Equity (ROE) should be higher than 15% for the previous 3 Years’ Average.
• The current ratio should be more than 1.
• The dividend should be increased for the previous five years. 

• Consider Industry Trends 

Investors should analyze how conveniently and fast a company can evolve with the changing trends in the market as industries keep evolving with technological advancements. You should check if there is a risk of the decreased value of certain products with the time and advanced technology. Companies need to keep investing in advanced technologies like AI and machine learning to ensure growth in the present technological environment. Investors can consider rising sectors, including infrastructure, capital goods, real estate, green power, etc. These industries have strong positions in the market.

• Invest in Businesses with ‘MOAT.’ 

A moat is a deep ditch that is used to defend against attacks on a fort. Investors can pick some stocks with a such moat around them as peers cannot defeat those companies easily in their industry. Let us talk about Colgate, Maggi, and Suzuki. These are used as synonyms for toothpaste, noodles, and cars and are known by almost every Indian. These companies share almost half of the market share in their relevant industries. Investors can select the companies that consumers rarely think of switching to, like, banks or IT companies. For example, Coal India and IRCTC. Investors should look at the company’s market share, the unique selling proposition, and how it is operating and profitable against its peers in the industry.

• Invest in Products or Services that you understand 

It is necessary that you understand the company’s business model and know about its products or services for successful trading in India. It will be good if it is a simple business model. There are numerous businesses that everyone knows, like clothing, shoes, bikes, cars, and banks. You may not want to invest in the stock of chemical companies without knowing what it produces and how it markets. You can consider products with low-cost durable competitive advantage.

• Check the Company’s Management Efficiency and Qualification 

A company’s management is the soul of the business. Efficient management can take the company to new heights. Therefore, it is necessary to research carefully about the company’s management before you consider investing. Research and know about the CEO, CFO, MD, and CIO and their qualifications with past experience. You can check the length of tenure of management and promoter’s buying and share buybacks. It indicates that they trust the company. 

Thus, invest in quality stocks with significant profit potential. If you are considering undervalued stocks, investigate to know the reason behind the undervaluation. If there is no growth opportunity in the future, avoid such stocks.