A building collapse due to poor construction and the result of a poor foundation is a well-known fact. This denotes the importance of a strong foundation for any infrastructure. The same applies to Stock Market. Strong Fundamentals lay a fundamental step to building a Strong Stock Market Portfolio.
Investing in powerful companies with a strong knowledge acting as foundation is the key to earning mind-blogging returns. But, before all this, the first task is to find out Fundamentally Strong Stocks in India.
Fundamental Analysis of Stocks
Finance is the blood of any business. Fundamental Analysis of Stocks, one of the major branches of Stock Analysis in Stock Market, helps evaluate the health of company through its financials. Companies with solid fundamentals have strong underlying businesses. They bleed less during times of a market crash and give manifold results with time.
Important Parameters of Stock Fundamental Analysis:
Quantitative Analysis:
As per the name, the measurable characteristics of a business are termed Quantitative Analysis. Financial Statements of a company that constitutes of balance sheets, profit and loss reports, cash flow statements, quarterly performance, financial ratios, etc., which play a major role in Quantitative Analysis of Stocks. They help in determining the stock’s past performance and its future performance as well. Some important parameters in the Fundamental Analysis of Stocks are:
1.ROCE – Return on Capital Employed:
A fundamentally strong company is termed to be fundamentally strong if its business is profitable. Profitability can be gauged by checking the ROCE ratio, which tells the efficiency of a company in utilizing its capital.
Note: A company with a ROCE greater than 17% is in a good financial position.
2. Debt to Equity:
The ratio of long-term debt (Loan funds) to that equity (Share Capital + Reserves) is termed the Debt-to-Equity ratio. Zero debt is amazing!
Note:
- A D/E ratio of 2:1 or greater is highly dangerous for an organization.
- It is important to note that capital-intensive industries like automobile manufacturing, steel production, etc.., can have a high D/E ratio.
3. Current Ratio
The current ratio tells the liquidity of a company.
Current Ratio = Current AssetsCurrent Liabilities
An ideal current ratio is 2:1 which is good. A ratio below less than 1, implies that current liabilities are more than current assets which is considered dangerous for a company.
Alert:
- The current ratio should not be too high as well. If a company is having too high a current ratio, it indicates that the company is not using its current assets in an effective way.
- This ratio cannot be used for banks, NBFCs, etc., as the tendency of their work, is itself to give loans.
Other Important Parameters:
Revenues, Profit After Tax, Cash flow analysis, ROE, P/E ratio, etc.
Qualitative Analysis:
Qualitative Analysis on the other hand includes qualitative analysis of a company. It includes analyzing various factors like demand, company recognition, competitive analysis, reputation, etc., that speak about the quality of a company. One important factor in Qualitative Analysis is management.
Management:
“Doing things right is management.” But “Doing the right things is leadership.”
Any company is made up of people and cannot run without them. Without proper management, companies with high capital, and less debt can even go bankrupt. Hence management with proper skills, attitude, leadership qualities, problem-solving mindset, determination, developing mindset, etc., shape the company like a leader. Because people invest in the leader even before they buy into a vision.
Important Alert:
When doing a Fundamental Analysis of Stocks, combining multiple parameters helps in a meaningful analysis of a company. Today, in this article, we are going to discuss about some of the best Fundamentally Strong Stocks in India.
1.Reliance
Market Capitalization: Rs.17,57,407 Crores
Reliance Industries, a well-known segment leader in India, is a Fortune 500 company that operates in the Oil-To-Chemical segment, retail segment, digital services, media, entertainment business, etc., plays a prominent role in India’s development.
2. Tata Elxsi
Market Capitalization: Rs. 42,937 Crores.
Tata Elxsi, one of the world’s leading design and technology service providers has a geographical presence across the world. With a 5-year ROCE of 45%, ROE of 37.2%, and a Debt/Equity ratio of 0.11%, Tata Elxsi is one of the Best Technology Stocks to Invest in India.
3. Divis Laboratories
Market Capitalization: Rs. 87,269 Crores.
Divis Laboratories, one of the leading pharmaceutical companies in the world is a manufacturer of Active Pharmaceutical Ingredients, Intermediates, and Nutraceutical Ingredients and has a market presence in 95 countries across the globe.
With a diversified portfolio, a powerful R&D team, and numerous manufacturing facilities, Divis lab is one large-cap company with very strong fundamentals and high future growth prospects.
4.Alkyl Amines
Market Capitalization: Rs. 14,323 Crores.
Incorporated in the year 1979, Alkyl amine is a leading manufacturer of aliphatic amines in India. With its presence in various industries such as agrochemicals, paints, coatings, pharmaceutical industry, etc., it has a strong presence in India coupled with various parts of the world. The 5-year average ROCE and Debt/Equity ratio are 38% and 0.06 respectively, which speaks how fundamentally sound the company is.
5. Relaxo Footwear
Market Capitalization: Rs. 22,153 Crores.
Relaxo Footwear, one of the largest footwear manufacturing companies in India, deals in non-leather products like rubber slippers, sports shoes, canvas, etc. With a portfolio of renowned brands like Sparx, Flite, Relaxo, Bahamas, etc., it sells its products through retail outlets, exports, e-commerce, modern trade, etc.
With its robust distribution network, rising exports, and increasing online presence, Relaxo is the leader in ‘value segment footwear’.
6. IEX
Market Capitalization: Rs. 12,442 Crores.
IEX, the first largest energy exchange in India provides a nationwide, automated trading platform for the physical delivery of electricity. It has 7300+ registered participants from 36 states and union territories for trade electricity contracts. With a lot of growth potential and capability, IEX can win very big in the long term.
Bonus Stocks with Strong Fundamentals:
- Vedant Fashions (Manyavar) – Prominent retailer in Men’s wedding wear segment in India.
2. Affle India – A technology company with its roots in Artificial Intelligence, the future of technology.
3. Ami organics – Leading research and development-driven manufacturers of specialty chemicals.
