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It Is Important To Know What Defines A Quality Stock!


Markets these days are not doing much, except testing investors’ patience. Well, one can expect markets to remain dull till May this year. In May, the electoral verdict will be out and we will know exactly which coalition will form the government and the situation arising therefrom. The biggest event in five years will set the direction for the markets. Till then, the sideways direction of the markets may frustrate lot of traders and investors looking for clear cut direction in stock prices. 

I am thrilled to see that the interest rates were reduced in the recent RBI meet. We have been predicting a rate cut recently. The good news in our view is that there is a chance that the rates will be further reduced in the next RBI meet. Such monetary decision in my view augurs well not only for the stock prices, but also for economic growth. It will definitely have a positive impact on the stock prices in the long run. Interest rate-sensitive stocks, including banks and NBFCs, may benefit the most owing to rate cuts. 

The current issue is a special edition where we have shared a list of top 250 large-cap stocks on various fundamental parameters. The list should help you identify some of the best performing large-cap stocks. In the cover story, we have highlighted various reasons why large-caps need to be a part of your portfolio. Do help us with your feedback on our observations related to investing in large-caps. 

Markets are volatile and indeed the volatility is expected to increase as we move towards the election days. In one of our most interesting special stories, we have discussed how one can use volatility in equity prices to make money. We have especially focused on technical analysis tools that can help any trader or investor manage volatility profitably. I am confident that both traders and investors can use the insights gleaned from our special report to generate profits in volatile markets. 

Coming back to markets, we always find experts talking about sticking with quality stocks, be it large caps, mid-caps or small-caps. But how does one determine quality stocks? For starters, try finding stocks that have consistently generated ROCE greater than 15 for the last five years or more, debt-to-equity is lower than 1 in the latest financial year, free cash flow to market cap ratio (FCF yield) is positive in the last five years, management track record is impeccable, no corporate governance issue, minimal pledging of shares, growth in sales is not at the cost of shrinking margins, i.e margins are stable and growing and last, but not the least, the overall industry is on a growth trajectory. 

If you can strictly follow these quality parameters in any market conditions and build a diversified portfolio, chances are you will build a robust portfolio that can beat benchmark indices (Sensex/ Nifty). 

Stay invested, remain diversified and focus on quality as discussed above. 

Happy Investing!

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