Indian Share Market | What a long term investor must check in stocks before buying it.

Which are the best stocks currently trading in the stock market? How to evaluate the future potential of such stocks?

In this blog post, we will discuss what a long term investor must check in stocks before buying it.

1. WHICH ARE BEST STOCKS?

Best stocks are ones, which represent a “good business”, and are also available at “undervalued price” levels for investing.

• Good business: Which is good business? There can be several contributing factors, but what works best is ‘free cash flow’. Read about blue chip stocks.
• Undervalued Price: What is undervalued price? For this one must know the ‘intrinsic value’ of a stock. When market price less than its intrinsic value, stock is undervalued. Read about low PE stocks.

A good business will always generate high free cash flows. High free cash flow will eventually lead to high intrinsic value. Check free cash flow based calculator.

When intrinsic value is high, there are more chances to find it at undervalued price levels.

So what is the takeaway from here? Look for stock with high free cash (FCF).

See how good business builds its intrinsic value (use MS Excel to estimate intrinsic value)

2. WHICH ARE UNDERVALUED STOCKS?

Suppose a stock is trading at a market price of Rs.100/share. Upon estimation, its intrinsic value comes out to be Rs.120/share.

As market Price is less than intrinsic value, stock is said to be undervalued.

To identify best stocks, the essential ingredients are the following:

• Free cash Flow (FCF), and
• Intrinsic Value (IV). Read more on IV formula.

How to identify best stock? FCF will help you to estimate IV.

Then one can compare the current market price with its estimated intrinsic value to check undervaluation. Read more on undervalued stocks.

3. COMPLICATION TO IDENTIFY BEST STOCKS

It is not possible to accurately identify best stocks without knowing their free cash flow and intrinsic value.

Does this understanding make best stock picking simpler? Yes and No. 

• Yes, because we now know what stock parameter must be looked at to pick best stocks. Otherwise we simply waste our time looking at less important stock metrics like financial ratios etc. 
• No, because estimation of both ‘free cash flow’ and ‘intrinsic value’ is a special skill. Only gifted people can do it accurately. 

So how a common man, who knows nothing about stocks can identify best stock? It is a tough task, but I have a solution for it.

4. THE ULTIMATE SOLUTION

Why I’m calling it ultimate? Because the solution lies within us. How?

Learn to estimate intrinsic value of stocks by self.

From my experience, I can say three things about intrinsic value estimation:

• First: Estimating an approximate intrinsic value of stocks can be done by anyone. No special skill is necessary.
• Second: The more one practices estimating intrinsic value, the accuracy improves.
• Third: It is better to believe in the intrinsic value estimated by self, rather than buying stocks on others advice.

I am sure these points are making sense, right?

But some might say that estimating intrinsic value estimation is tough – how to learn it?

This is where my stock analysis worksheet can be helpful. How? You can actually see for yourself the financial reports data being converted into intrinsic value.

Reading this article, and using my excel worksheet can give huge clarity about intrinsic value estimation even to a novice.

A few days of practice can clear a lot of cloud about intrinsic value.

So lets process and try to learn how to estimate free cash flow and intrinsic value of stocks…

5. WHAT BUILDS INTRINSIC VALUE?

Before we get into the math part of intrinsic value, let’s understand what are the steps involved in estimation of intrinsic value.

There are several methods of estimating intrinsic value of stocks. One of the most reliable method is discounted cash flow model (DCF). You can read this post to know more about it.

But here what I will show you is a hybrid method of “dividend discount model’ and DCF.

In this hybrid model, there are three steps which ultimates helps us to build the intrinsic value:

• Step #1 (FCFE): Calculate the present Free Cash Flow to Equity (FCFE).
• Step #2 (FCFE Growth): Forecast FCFE growth rate for next one year.
• Step #3 (Expected Return). Quantify your ‘expected return’ (say 5%, 8%, 12% etc).
• Step #4. Calculate intrinsic value. 

5.1 HOW TO ESTIMATE FREE CASH FLOW (FCFE)

A stock must show a positive free cash flow (FCFE). If not, then its intrinsic value will also go in negative.

Only if the FCFE is positive, the stock may stand a chance to become undervalued.

How to estimate free cash flow? Free cash flow formula is like this:

To estimate free cash flow, get the following values from the company’s financial reports:

• PAT: Open the ‘profit and loss account’. Note the numbers mentioned against ‘net profit after tax’.
• CAPEX: Open the ‘cash flow statement’. Go to ‘Cash flows from investing activities’. Note the numbers for ‘purchase and sale of capital assets’.
• D&A: Open the ‘profit and loss account’. Go to the section where all ‘expenses’ are listed. Note the numbers mentioned against ‘depreciation and amortisation’.
• Increase in Working Capital (WC): Open the ‘balance sheet’. Note current assets (CA) and current liabilities (CL). The formula for change in WC will be like this:
  • CA (Increase) = CA (Y2018) – CA Y(2017)
  • SL (Increase) = CL (Y2018) – CL (Y2017)
  • WC (Increase) = Increase in (CA – CL).
• New Debt: Open the ‘cash flow statement’. Go to ‘Cash flows from financing activities’. Note the numbers for ‘purchase and sale of capital assets’. Note the numbers mentioned against ‘Proceeds from borrowing’.
• Debt Repaid: Open the ‘cash flow statement’. Go to ‘Cash flows from financing activities’. Note the numbers for ‘purchase and sale of capital assets’. Note the numbers mentioned against ‘Repayment of borrowing’.

Gather these values in your excel sheet and calculate the free cash flow (FCFE) as indicated below.

Note the ‘Formula‘ column. This way, one can arrive at ‘free cash flow‘ numbers for a stock.

5.2. HOW TO ESTIMATE FCFE GROWTH (G)?

In the above step we have estimated the Free Cash Flow (FCFE) of a stock.

Now we must estimate the expected rate at which the above FCFE will grow in next 1 year time (g).

There are two ways to do it, easy way and the difficult way.

• Easy way: Assume it to be 5% (g = 5% p.a). Logic, in India the average inflation over a period of last 10 years is close to 7.5% per annum. Over a period of time, a good company will make sure that its Free Cash Flow (FCFE) must beat the inflation rate. But this will happen only in long term. In shorter time horizon (like next 1 year), assuming a smaller growth rate (less than inflation) is better. Hence we can settle g=5%. If you want, you can repeat the calculation for other g values like 3%, 6% etc.
• Difficult way: Calculate the FCFE for last 5 years. See the trend and then make a safe assumption. But I will suggest that, initially do not go the difficult way. Downloading annual reports, searching data in the reports, preparing the excel sheet will take time. If you afraid of losing the interest, begin with the easy way. If after the calculation, the stock looks attractive, repeat the process using the difficult route. Another option can be, use my stock analysis worksheet.

5.3 WHAT SHOULD BE THE EXPECTED RETURNS (K)?

This step will be easy.

But important Note: K must always be more than g. Here as well, I will suggest you to use a rule of thumb (k= 8% per annum).

Logic, in a long time horizon (5+ years), Sensex/Nifty can grown at a rate of 12% p.a. But at present we are making an assumption for next 1 year only.

Hence a smaller rate of return (w.r.t. 12%) shall be assumed. Hence I have settled for rate of return of g=8%.

My suggestion will be to repeat the calculation with the following combination of “g & k” values:

5.3 WHAT SHOULD BE THE EXPECTED RETURNS (K)?

This step will be easy.

But important Note: K must always be more than g. Here as well, I will suggest you to use a rule of thumb (k= 8% per annum).

Logic, in a long time horizon (5+ years), Sensex/Nifty can grown at a rate of 12% p.a. But at present we are making an assumption for next 1 year only.

Hence a smaller rate of return (w.r.t. 12%) shall be assumed. Hence I have settled for rate of return of g=8%.

My suggestion will be to repeat the calculation with the following combination of “g & k” values:

	1	2	3	4	5
g	3%	5%	7%	9%	12%
k	6%	8%	10%	12%	15%

5.4 CALCULATION OF INTRINSIC VALUE

What we have in hand till now?

• FCFE.
• FCFE Growth Rate – for next 1 year (g)
• Expected Return – for next 1 year (k)

With these values we can estimate the intrinsic value of any stock using a formula.

What is the formula? It is called Gordon Growth Model. 

Intrinsic value = Dividend / (k – g)

But in our hybrid formula, we have replaced Dividend with FCFE. This way our new formula looks like this:

Intrinsic Value = FCFE / (k – g)

What is the logic for this alternation?

In the Gordon Growth Model, dividend is taken in consideration as its ‘real earnings’ reaching the hands of investors. In other words, it is the dividends which is creating real value for the shareholders.

The real value generator (dividend) in turn is determining the intrinsic value of the stock.

Similarly, free cash flow has powers to create real value for the shareholders. How? In two ways:

• One: A part of FCF can be used to pay dividends to the shareholders.
• Two: Another part can be reinvested back into the business to fund future growth (resulting in capital appreciation).

The real value generator (FCF) in turn is determining the intrinsic value of the stock (using the hybrid formula)

Examples of intrinsic value calculation:

6. BEST STOCKS ARE UNDERVALUED

How to check if the above stocks are undervalued or not? Just follow the below 2 steps:

1. Calculate IV/share (N): What is IV per share? Intrinsic value converted to per share value. How to do it? Get the ‘number of shares outstanding’ of the company from its financial reports. IV/share = Intrinsic value / N.
2. Compare: Compare the calculated IV/share with the current market price of the stock. If IV/share is more than current price, the stock is undervalued.

Now matter how strong is the underlying business, a stock cannot become a good buy till its market price is ‘undervalued’.

7. NECESSITY OF STOCK ANALYSIS

There are 5,000+ stocks currently trading in Indian stock market (BSE). Out of these, which are the best stocks?

The answer is not easy. In fact, the answer is so unique that people who can find this answer have become millionaires.

We common men can find this answer? Yes it is possible.

But we have to follow a procedure. We can use two basic screening criteria’s. This will help to identify best stocks among ordinary ones.

What is this screening criteria?

When people undertake the process of intrinsic value estimation of a stock, they are actually following these 2 screening criteria:

• Screen #1: Remove fundamentally weak stocks. How it is done? Only those stocks whose free cash flow is positive  are fundamentally strong. 
• Screen #2: Remove overvalued stocks. How this is done? Only those stocks whose market price is less than its intrinsic value per share are undervalued. 

World's biggest lockdown may have cost Rs 7-8 lakh crore to Indian economy

The rapid spread of COVID-19 has not only disrupted the global economy but also triggered a partial shutdown in many parts of India from early March and an almost complete shutdown from March 25.

The world's biggest lockdown that shut a majority of the factories and businesses, suspended flights, stopped trains and restricted movement of vehicles and people, may have cost the Indian economy Rs 7-8 lakh crore during the 21-day period, analysts and industry bodies said.

With the intent to contain the spread of COVID-19, Prime Minister Narendra Modi with effect from March 25 announced a nationwide complete lockdown that brought as much as 70 per cent of economic activity, investment, exports and discretionary consumption to a standstill. Only essential goods and services such as agriculture, mining, utility services, some financial and IT services and public services were allowed to operate.

Stating that the pandemic came at the most inopportune time for India whose economy was showing signs of recovery after bold fiscal/monetary measures, Centrum Institutional Research said the country again stares at the possibility of low single-digit growth for FY2021 (April 2020 to March 2021).

"Nationwide complete lockdown is likely to shave off at least Rs 7-8 trillion," it said.

Acuite Ratings & Research Ltd earlier this month estimated that the lockdown will cost the Indian economy almost $4.64 billion (over Rs 35,000 crore) every day and the entire 21-day lockdown will result in a GDP loss of almost $98 billion (about Rs 7.5 lakh crore).

The rapid spread of COVID-19 has not only disrupted the global economy but also triggered a partial shutdown in many parts of India from early March and an almost complete shutdown from March 25.

Impact of COVID-19 on inflation is ambiguous: RBI

COVID-19 would impact economic activity in India directly due to lockdowns, and through second round effects operating through global trade and growth, according to RBI annual policy report. The impact of COVID-19 on inflation is ambiguous, with a possible decline in food prices likely to be offset by potential cost-push increases in prices of non-food items due to supply disruptions, the RBI noted. Risks around the inflation projections appear balanced at this juncture and the tentative outlook is benign relative to recent history. But COVID-19 hangs over the future, like a spectre, RBI stated. Headline consumer price index (CPI) inflation breached the upper tolerance band of the target in December 2019 and peaked in January 2020, before ebbing prices of vegetables, fruits and petroleum products produced a downward shift of 100 bps in February. The trajectory of inflation in the near-term is likely to be conditioned by the pace of reversal of the spike in vegetables prices, the dispersion of inflationary pressures across other food prices, the incidence of one-off cost-push effects on various elements of core inflation and especially, the evolution of the COVID-19 outbreak. Looking ahead, three months and one year ahead median inflation expectations of urban households softened by 10 bps and 20 bps, respectively, in the March 2020 round of the survey conducted by the RBI. The proportion of respondents expecting the general price level to increase by more than the current rate also decreased for both three months and one year ahead horizons vis-à-vis the January 2020 round. Although largely adaptive, inflation expectations of households and firms can shape future inflation through price and wage setting behaviour. According to the Reserve Bank's consumer confidence survey for March 2020, inflation expectations moderated over the previous round.

Sensex today india | Indian share market | India's forex reserves declines to US$ 474.66 billion as on 3 April 2020

India's foreign exchange reserves fell by US$ 0.90 billion to US$ 474.66 billion in the week ended 3 April 2020. The foreign exchange reserves had stood at US$ 475.56 a week ago.

Within the foreign exchange reserves, the foreign currency assets eased to US$ 439.12 billion in the week ended 3 April 2020 from US$ 439.66 billion a week ago.

The gold asset also fell to US$ 30.55 billion from US$ 30.89 billion a week ago. SDRs were flat at US$ 1.43 billion in the week ended 3 April 2020.

India's foreign exchange reserves declined by US$ 3.15 billion over March 2020, while jumped US$ 60.88 billion over a year ago level.

World Bank Sees Notable Slowdown In Domestic Growth This Year

The World Bank stated in update that Indian economy is likely to slow down this fiscal (2020-21) with growth rate in the range of 1.5-2.8%. The GDP growth is estimated at 5% or even lower during fiscal year 2019-20

India's fuel product sales dip 17.8% in March 2020

India's fuel product consumption or sales dipped 17.8% to 16.08 mt in March 2020 over a year ago in the backdrop of nation-wide lockdown from 22 March 2020. Diesel sales plunged 24.2% to 5.65 mt, petcoke 22.2% to 1.68 mt, petrol 16.4% to 2.16 mt, bitumen 41.0% to 0.53 mt and ATF 32.4% to 0.48 mt. Further, the consumption of lubes/greases also declined 34.9% to 0.30 mt, kerosene 47.9% to 0.15 mt and fuel oil 10.3% to 0.48 mt and others 5.7% to 0.92 mt. However, the consumption of naphtha improved 15.7% to 1.39 mt, LPG 1.9% to 2.31 mt and light diesel oil (LDO) 5.2% to 0.05 mt in March 2020.

Consumption or sales of fuel products rose 0.2% to 213.69 mt in April-March 2020 over April-March 2019. Sales of petrol increased 6.0% to 29.98 mt, LPG 5.9% to 26.37 mt and petcoke 1.5% to 21.66 mt. Further, the consumption of naphtha also rose 2.2% to 14.44 mt and LDO 5.0% to 0.63 mt. However, the consumption of kerosene declined 30.7% to 2.40 mt, diesel 1.1% to 82.58 mt, fuel oil 7.1% to 6.09 mt, bitumen 4.9% to 6.38 mt, ATF 3.6% to 8.00 mt, others 1.6% to 11.53 mt and lubes/greases 0.8% to 3.64 mt in April-March 2020.

COVID-19 | How to maximise food security in post-COVID India

India must revamp its food grain storage techniques, modernise its mandis and expand the capacity of cold chains without any further delay

The Indian agriculture and food processing sector has so far ensured that staple foods such as wheat flour, rice, pulses, edible oils, and fruits and vegetables are largely available across India. In most parts of India, urban centres have also not experienced any serious shortage of food items.

However, despite abundant production and availability of fruits and vegetables, there has been a price rise due to restrictions on mandi operations and movement from villages. At several places, there are reports of distress sale of vegetables and fruits by farmers. Despite the Union government’s clear instructions, police have been restricting movement, due to which farmers are selling in distress and consumers are paying 15-20 percent higher prices.

According to the Solvent Extractors Association, India consumes about 23 million tonnes of edible oils, out of which only about 8 million tonnes is produced domestically and the remaining 15 million tonnes is imported. An efficient global supply chain has ensured that Indian consumers have so far not faced any shortage, nor any price rise.

The Government of Karnataka had closed the roads connecting Kasaragod in Kerala and Mangaluru in Karnataka. There were media reports that movement of vegetables from Tamil Nadu and Karnataka to Kerala was also affected. There is a growing realisation that Kerala should make efforts to become self-sufficient for its food requirement.

Whenever the threat of large scale deaths due to COVID-19 subsides, governments across the world may decide to build sufficient domestic capacity to grow (if possible) and store enough food to meet its requirement for at least six months. Food importing countries may realise that they need to invest large sums of money in creating modern infrastructure at ports.

In India also, there is likely to be a greater realisation to modernise supply chains of agriculture and food.

For holding government stocks of food grain, India has a silo capacity of just 6.6 lakh tonnes. The storage and movement of food grains, whether by railway rakes or by trucks, is in gunny bags which results in losses. As of January 31, about 13.2 million tonnes of wheat was stored in covered and plinth storage (CAP) in open fields, mostly in Punjab. By the time Rabi procurement ends in June, there could be much more wheat in CAP storage, some on totally unscientific and ‘kutcha’ plinths. India must quickly invest in modern steel silo storage capacity in major procuring states so that wheat procured by the government is not required to be stored in CAP.

Most of the mandis in India do not have facilities for assaying and grading. The commission agents decide the price on the basis of smell and physical examination of produce. Mandis can easily be equipped with modern equipment for testing.

India also needs to invest in setting up modern abattoirs so that people can get hygienically slaughtered poultry and meat. Similarly, cold chain capacity (including reefer trucks), for perishable food, medicines and vaccines etc. needs to be expanded.

Delhi needs to act decisively and fast as once the world puts the pandemic behind it, the government must not only ensure that there is self-sufficiency back home, but also be prepared to expand its agriculture exports to meet demands in foreign markets.

Finally, a question can be asked: how to raise money for this much-needed investment in agriculture, food and health infrastructure? The government can begin by abandoning the central vista redevelopment project in New Delhi. This can provide Rs 20,000 crore.

Bajaj Finance, Hero Moto, Axis Bank among 10 stocks to buy

Here are the 10 stocks which could give 6-42 percent upside.

Axis Bank | Brokerage: Geojit | Rating: Buy | LTP: Rs 420 | Target: Rs 474 | Return: 13 percent in 12 months

Vardhman Textiles | Brokerage: ICICI Direct | Rating: Buy | LTP: Rs 639 | Target: Rs 800 | Return: 25 percent in 12 months

Hero MotoCorp | Brokerage: ICICI Direct| Rating: Buy | LTP: Rs 1,994 | Target: Rs 2,270 | Return: 14 percent in 6 months

MAS Financial Services | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 581 | Target: Rs 690 | Return: 19 percent in over 12 months

HDFC Life Insurance Company | Brokerage: KRChoksey | Rating: Buy | LTP: Rs 471 | Target: Rs 604 | Return: 28 percent

Bajaj Finance | Brokerage: KRChoksey | Rating: Buy | LTP: Rs 2,550 | Target: Rs 3,639| Return: 42 percent

Marico | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 297 | Target: Rs 315 | Return: 6 percent

Manappuram Finance | Brokerage: Geojit | Rating: Buy | LTP: Rs 111 | Target: Rs 133 | Return: 20 percent

L&T Technology Services | Brokerage: Arihant Capital | Rating: Buy | LTP: Rs 1,180 | Target: Rs 1,432 | Return: 21 percent

Bajaj Finserv | Brokerage: Sharekhan | Rating: Buy | LTP: Rs 4,822 | Target: Rs 6,800 | Return: 41 percent

Investors should take a "middle path", says Taher Badshah, Invesco MF

The Indian equity market has passed through the point of peak coronavirus fear, according to Taher Badshah, CIO-Equities of Invesco Mutual Fund. He says that a situation of immense fear and panic selling is unlikely now.

"I doubt if we are going to experience a situation where there is going to be once again maximum fear and panic selling. We have probably past that phase now," said Badshah in an interview with CNBC-TV18.

"We are now inclined to assess incoming data both on the progress of the coronavirus as well as in terms of whatever is happening to policy actions as well as moves around the government’s lifting of the lockdown, which is going to probably determine the course of the market. I am not too sure if this is the phase where you have to start booking profits," he added.

Badshah advises investors to take a "middle path" at this stage.

"If you don’t want to be aggressive, you also don’t have to be completely defensive either. You have to take a middle path at this stage. We are right now taking aggressive bets in some cases and even being defensive in certain cases as the case maybe," he said.

Speaking about non-banking financial companies (NBFCs), he further mentioned, “We have reduced our 'overweight' call in some of the names and try to see whether we can move that same position into some of the banks because some of the private banks including the leading banks have collapsed or are trading relatively cheap on the valuation spectrum. So I think it makes good sense to do or bring that element of defensiveness into the portfolio."

Source: CNBC-TV18

Winners & Losers: 10 stocks that moved the most on April

Pharma stocks rallied with Nifty Pharma jumping over 2 percent. Avenue Supermarts hit lower circuit on April

Zee Entertainment | Share price fell over 8 percent on April 13. In a BSE filing on April 9, the company said that the board at a meeting held a day earlier agreed to extend financial and operational support to SugarBox, a company in which Zee acquired 80 percent stake in 2017.

Dr Reddy's Labs | Shares gained 3 percent on April 13 after the company launched a blood cancer drug Invista in the country and received Establishment Inspection Report from the US health regulator for Telangana facility.

Lupin | Share price gained over 4 percent after the pharma major’s Nagpur facility received Establishment Inspection Report (EIR) from the US health regulator.

GPT Infraprojects | Share price rallied 17 percent after the company received a Rs 114.68-crore road-widening order in Manipur.

Gulf Oil | Share price of Gulf Oil Lubricants jumped over 3 percent after the board fixed April 23 as the Record Date for payment of interim dividend for the financial year 2019-20.

Avenue Supermarts | Share price slumped 5 percent after the company said half of its stores were closed and were getting fewer customers due to the lockdown.

Caplin Point | Shares gained 6 percent after its subsidiary received US health regulator's approval for an anesthetic drug.

AIA Engineering | Share price shot up 17 percent after the company said it resumed operations at its Ahmedabad and Trichy plants.

IG Petro | Share price jumped 5 percent after a subsidiary of the company was liquidated with effect from April 12, 2020 due to the absence of any operations.

Select companies likely to recover fast after lockdown

Pharmaceuticals and consumer staples stocks, being essentials, are expected to do well during the ongoing pandemic. But select stocks in power utilities, telecom, city gas distributors and hospitals could also benefit as they are likely to see a quick recovery after lockdown ends, according to CLSA. Here’s why CLSA expects these stocks to see a quick business normalization.

BHARTI AIRTEL

Recent prepaid tariff hikes will drive near- and medium-term earnings growth for the company. Telecom is relatively insulated from the coronavirus crisis and the impending Trai decision on floor tariffs will be a big positive for Bharti Airtel, said CLSA.

POWER GRID CORPORATION

Power Grid Corporation of India NSE -2.74 % presents resilience in its core earnings due to India’s solid regulatory regime, while some of its growth could get shifted due to project delays as a result of the lockdown. Power Grid is a highly defensive business and trades at a rather inexpensive price-to-earnings ratio of eight times on FY20 estimates, said CLSA.

NTPC

NTPC is one of the few regulated entities to have double-digit regulated equity growth over FY20-FY23, said CLSA. The stock can outperform in 2020 as it has robust renewable energy growth which should expand its return on equity by 190 bps over FY20-FY22, said CLSA.

APOLLO HOSPITALS

The hospital chain has been impacted by travel restrictions. Higher-yielding overseas patient volumes may take time to recover, but inter-state patient volumes may normalise relatively quickly once the lockdown ends. Lower hospital revenue may be partly negated by better than-modelled growth in the pharmacy and diagnostics businesses, CLSA said.

10 Investment Rules

A must read if you have lost more and gained less in the market

Moses was coming down the stairs of the Bombay Stock Exchange building after a rough trading session one rainy day and look what he found peeking out of the false ceiling on the 10th floor landing, written in the hand of God...

God entrusted to Moses the noble task of protecting the small investor from the vagaries of the market and the attempts of various vested interests to waylay them on their path to safe investing. Safe investing, said God, was a mere matter of following these ten simple rules.

Commandment 1: Don't attempt to time the market

Timing the market is no guessing matter. To the little investor, timing the market is like taking a random walk. Most people only recognise the correct path after already having set foot on the wrong one. One exception to this is “bottom-fishing”, an approach to buy stocks that you want in your portfolio at prices below the prevailing levels. This entails biding your time and buying into a market downturn before the others do (the age-old philosophy of buying low, selling high). The downside of this approach being that the stock you want may never see the downside you expect.

Commandment 2: Don't try to outguess the market

Market psychology is for shrinks, not for couch potatoes like we humans. What captures the imagination of the market is transient. This means that what is “in” today is “out” tomorrow. Most people only recognise the pattern after it has become apparent to almost everyone else and is too late to act upon. For example, if investment in technology appears to be the current flavour, you are probably already too late to cash in on the trend. In this instance, you should only invest in technology as part of a long-term balanced approach.

Commandment 3: Treat investing like marriage--go for the long haul

Short-term investing could go either way. Invest for the long term. Almost all market pundits and investment studies show that stock investing should be part of a long-term strategy, lasting for five to ten, or even 20, years or longer. Beware that not every year will result in a positive return on your investment. However, over time the plus will likely overwhelm the minus by a substantial margin.

Commandment 4: Almost always invest in blue chips and blue chips-to-be

Do invest in companies that are considered blue chips. These include not only the BSE 100, but also the others that are slowly stepping into the big league. Invest only in established companies with a good track record. Beware that not every blue chip will rise after you buy it, and that even these otherwise stellar performers will have their good months/years and bad months/years. But over time, the fluctuations will even out and you would be left with a considerable net plus. Also invest in companies that have a good record of declaring dividends (and if you find the solitary one that increases its dividend pay-out each year...you know what to do).

Commandment 5: Prefer steady installment-like buying of stock to buying at one go

Investing should never be done in panic or be treated as an emergency. Purchasing your favourite few is best accomplished at a steady rate over time, so as to avoid the ups and downs of the market. This is called rupee cost averaging and is one of the safest approaches to investing. It works just like any other habit: you buy, regardless whether the price is up or down, until you reach the desired number of shares of that stock.

Commandment 6: Diversify, diversify and diversify

Do diversify your portfolio, both within your selected sectors and within the overall industry. For example, don't invest in only technology because it happens to be in vogue but consider the other industries as well.

Commandment 7: No shopping with borrowed money and maintain a core reserve

Never use margin money to buy stocks. You should not invest money you don't have. A simple and basic rule is to not leverage yourself to an extent that when the tide turns against you, all you are left with is nothing. You never know when a financial emergency might arise. That's why you must keep a comfortable cash reserve in your savings account, so you do not have to tap into your long-term investments. A reserve equal to six months of salary should be just about ideal.

Commandment 8: Set realistic financial goals

Treat a 500% return with as much derision as you would a 5% return. Decide what you need the money for: To retire early, to finance your kid's college education or to fund your daughter's marriage or just to preserve and build wealth? Whatever the goal you set, make sure it is reasonable and attainable. Expecting too much will only lead to disappointment down the road. Aim for an expected return level that is realistic--not mediocre or overambitious.

Commandment 9: Leave your emotions behind

Finally, leave your emotions behind when you enter the world of investing.

Commandment 10: There are 10 more commandments

For those who thought that was the last of the 10 commandments I have news. There's more. Ensure that your portfolio size is controllable (15 stocks is about ideal) and your stocks are well researched. Checkpoints: Is the management quality above board? Does the company have a positive cash flow? Does it have the capability to compete on a global scale? Most importantly, is it shareholder friendly?

Follow the Ten Commandments. Time is on your side. Investment success won't happen overnight, so stay focused on long-term returns and avoid overreacting to short-term market swings. Remember, investment success depends on time, not timing.

Best Stocks in India 2016-2017 in NSE-BSE

What is Stocks Investing? What are best stocks in India NSE-BSE? Have you just started to invest in the stock market?

You have found some stocks trading at just Rs.5 or 10. What an opportunity? There must be blind people to leave these stocks unnoticed. I will profit from them. It can easily double or triple.

If this is your thought then that is exactly ‘Stocks Investing‘. But is this rational? Let us find out….

I have a friend who bought a lot of Birla Power Solutions and Jupiter Biosciences in 2009. These were really hot penny stocks in late 2008. Let me tell you that he regrets his decision now. They have gone way down.

Best Stocks to buy in India 2016-2017 on NSE - BSE

Are you gung ho about buying top stocks? You’ve made up your mind already? While I would certainly advice to invest in top quality stocks, here are a list of top low cost shares to invest in 2016-2017. How did we select them? The criteria we used for choosing best stocks was…

• We made sure they’re not companies that vanish overnight. They must have been around a few years
• They may not strictly be penny shares but border around them. Ie., each shares costs less than Rs.25 and market Cap less than 500crores
• Their products/services must be real and visible
• Must have some downside protection in short-term
• Promoter holding must be 40% minimum

By this way we can at least make sure to screen the majority of bad companies (which most penny stocks usually are). Here is the list of top shares in India that meet above criteria

1)  IL& FS Investment Managers – This is a very good company managed by IL&FS group. They are involved in Private Equity business and are the only listed PE firm in India. IL&FS has a strong brand equity. The last value of stock was around Rs.21 . It gives a very good dividend and has no debts. While you cannot expect it to triple or quadruple in next year, it is somewhat a decent stock to buy in at low cost per share.

Update: This penny stock paid Rs 1.3 as dividend ie., 7% of cost price. It is also down by Rs.2. The decent fundamentals are still intact.

2)  JVL Agro Industries – It has a Market Cap of around Rs.200 crores and trading at around Rs.15 per share. It has P/E of 4 and book value of Rs.15. JVLis the largest single in-house manufacturer of Vanaspathi Oils. It has a dividend yield of around 1.5%

Update – This penny stock has moved from Rs 16.9 to Rs 20.5. Not great performance but not bad either.

3)  NeoCorp International Ltd – Neo Corp is a packaging provider expecially in textile manufacturing. It manufactures under PackTech brand. It has a market cap of around Rs.60 crores and per share costs around Rs.15. The PE ratio is close to 2 and dividend yield is 4%.

Update:The market cap of this penny stock has doubled in last one year after featuring first on our list. It now trades at Rs31.

4)  Genus Power Infrastructure – This is one of the leading electricity meters manufacturer in India. Have moderate debt on their books. The stock costs around Rs.21 and the market cap is around Rs.500crore. The PE ratio is around 9 and promoter holds around 50%. Earns around Rs70 crore profit every year. Decent fundamentals.

Update: This penny stock has gone up to Rs 46 now from Rs 21 when we first listed it. More than doubled.

5) Manali Petrochemicals – The company earns around a quarterly profit of Rs 9 crore and has almost no debt. It has been around for a long time and is currently valued at around Rs 200 crores.They are also regular in their dividend policy and the current dividend yield is around 4.3 %. A good penny stock to bet on for long term with decent fundamentals.

Update- The penny stock has more than doubled from Rs 200 crore to Rs 522 crores.

6) Nitish Estates – Nitish Estates is a leading real estate player in Bangalore . They build luxury apartments and have some good venture funding for their projects. As with many realtors they have some debt and you need to be remindful of that. This penny stock trades around Rs.14 and is a high risk bet.

Update – The stock is up by 10%.

7) Noida Toll Bridge – This is a toll bridge company promoted by IL and FS. Decent promoters. Good fundamentals. They can collect toll till 2031. At decent PE, the earnings growth will be minimal but re-rating can happen when bull market happens but you need patience. Handsome dividend yield. Good penny stock to bet on. Risk is removal of toll privileges but is remote possibility. New addition in 2016 penny stocks list.

8) Lycos Internet – New addition in Mar 2016. This is a Advertising company involved in Ad Media. Certainly the numbers say it is not a penny stock. It has great numbers in last 2 quarters. But the authenticity of numbers of this penny stock must be drilled further.The company has good ROE and ROCE and does not deserve to be a penny stock or trade at PE of 2.5. Again, not sure why market has not looked at this stock. Tread carefully and watch closely. If their numbers are true , when bull markets start there is chance for out-performance.

what is Stock Market?

A long  time ago, humans ran businesses with just their money. The businesses  they ran were small and they grew the businesses only with their own  profits. However, not all businesses can be built with your own money.  What if you wanted to build a new factory that costs more than a million dollars? Banks won't lend money for young companies and your friends won't have that much.

In the 15th-16th century as the Europeans started exploring Asia and Americas, the big explorers felt they needed a lot of money and their kings were not providing them anymore. The wealthy guys demanded a lot of interest. Thus, they felt they need to raise money from a bunch of common people. Thus, in 1602, the Dutch East Indian company became the first company to issue shares of its company in the Amsterdam Stock Exchange and get traded on a continuous basis.

What is a Stock? 

Stocks  in a company provide you a share of the company's future profits in  return for the capital invested. For instance, if you buy 1 stock of  Apple now, you will be assured one-billionth of  Apple's profits in the  future (as there are almost a billion such stocks that Apple has issued  now).

Listing: In  a stock market, 1000s of companies are listed and these companies  (called public companies - as they have given out their shares to common  public) pay a fee to the exchanges, along with a promise to provide all  important info to the markets. In return they get an opportunity to put  their company in the stock market's board & have the ability to get  money from people visiting the market. The first time a company's stock  appears on the stock market's board is called an IPO (Initial Public Offer).

Brokers: Conceptually,  a stock exchange is similar to eBay. These guys allow companies to  be listed and connect the buyers & sellers. Since millions of people  trade in the market and it is practically impossible for these  exchanges to deal with all the individuals, they have assigned brokers who act between the exchanges and the individuals.