How to Select Shares to Buy in India? Stock Picking Guide for Beginners!

How to Select Shares to Buy in India? Stock Picking Guide for Beginners!

A beginner’s guide on How to Select Shares to Buy in India: So, you are interested in the stock market and want to invest your money to grow. You have read some investment blogs, financial websites and subscribed to the Stock Tips and recommendations from a few brokers. However, you are afraid to take the next step.

Do you know that over 90% of people lose money in stock market who invest blindly in any stocks? Most of them lose money because they do not do their research first. They rely mostly on their brokers/friends to advise them to pick a stock to invest in the Indian stock market. On the contrary, if you want to smartly select shares to buy in India for consistent returns, then you are at the right place.

How to Select Shares to Buy in India?

1. Does the company has Good Fundamentals?

To find the answer to this question, there is a 2-minute drill to find a fundamentally strong company. Using this drill, you can filter the financially healthy companies so that you can proceed to investigate further. If the company is not fundamentally strong, there is no need to learn more about its products/services, competitors, future prospects, etc.

These financial ratios, however, tells us about past performance. You cannot decide whether the company will perform the same or better in the future based on just past trends. Therefore, you need to consider other important factors too while evaluating a stock to buy in the Indian stock market. These factors are discussed in the next steps.

2. Do You Understand the Products/Services offered by the Company?

After filtering the companies based on their financial fundamentals, you need to investigate the company’s business next. Understand the company’s business model and learn about its products and services. It’s important that the company is easy to understand and has a fairly straightforward business model.You might ask why is it so important to understand the company. Let’s comprehend this with the help of an example. Assume that you have to choose a classmate for whom you’ll be paying for 36 months of expenses. In return for this, he/she will give you a quarter of his/her earnings thereafter for the rest of their lives. Whom will you choose?

While choosing, you must be thinking to select the one who is most likely to have a great income in the future. Further, will you choose a guy/girl randomly, whom you know nothing about? As you don’t know that person, there is no way that you can predict how much he/she will earn in the future. The same goes for stocks. If you can understand the stock, you can easily make an informed decision whether to buy, hold or sell the stock at any time. Hence, always invest in the companies that you understand.

3. Will people still be Using this Product/Service in 15-20 years from now?

The next step is to ask about the future of the company. Always look for a company with a long life. Such companies have huge growth potential and the power of compounding applies to such companies. Avoid investing in companies having a life of just a few years.

For example, do you think people will be using soaps 20 years from now? The answer is ‘Yes’. It’s been there for over 100 years and will surely continue in the future. Maybe the fragrance will change, but the soap will be there. Now, take another example. What do you think about pen drives? Do you think that people, 20 years from now, will still use pen drives? The answer might be no. Overall, select only a stock to invest in the Indian stock market that will last for the next 15-20 years.

4. What is the Company Doing that Its Competitors are not?

Find the unique selling point of the company. Learn what this company is doing which its competitors are not doing.

To understand better, let us analyze the Indian automobile sector. There are a number of automobile companies in India. However, when we consider the passenger vehicles (Cars and SUVs), Maruti Suzuki is the leading company in India. There are a number of Indian and global competitors against Maruti in this sector like Tata Motors, Hyundai, Honda, Ford, etc. However, they have not been able to break the Maruti’s moat.

Maruti Suzuki is dominating because of its cost advantage and the easily available service centers that it provides. Most competitors of Maruti are not able to compete on its selling price. Further, Maruti’s service center can be found on every corner of the streets. It’s really simple and easy to get a Maruti car serviced even in small cities and that too at a little price. On the other hand, try to get your ‘FORD’ car serviced. You will rarely find any authentic ford service center around you. That’s why people prefer buying Maruti cars in India.  And hence, Maruti Suzuki is able to increase its sales consistently and give good returns to its shareholders.

Overall, investigate first what the company is doing that its competitors are not before you select a stock to invest in Indian stock market. Whether you’re investing in a banking stock or Tyres, there will be many companies and competitors. Find out the USP of the company in which you’re interested to invest.