As a beginner in the stock market it is not easy to select what stocks to buy and even if you have selected one of those then comes the major question i.e., how to analyze stocks in the stock market in India?
Many of the investors tell about, do afundamental analysis of the companybut the question is that how to do a fundamental analysis of stocks? What factors should we consider before buying stocks in Bse or Nse?
So, In this article, you will get to know the answer to your question, how to analyze stocks for beginners in the stock market 2021?
Don’t confuse yourself Stocks with Companies in this article both are used in the same way.
For stocks
We have to consider our valuations of the company to the current price that the company is trading at in the stock market exchanges i.e., Bombay stock exchange ( BSE ) and National stock exchange (NSE)
We should always seek amargin of safety– purchasing the stock at a lesser price compared to its intrinsic value. One thing to remember here is that the lesser assumptions we have to make about the future of the company during analysis, the lesser the possibility for error.
Avoid making too many assumptions in your stock analysis but it is important to have some of them like you are seeing the changes in the Car sector, gradually theelectric vehiclesare taking place of the petrol vehicle or diesel vehicle and it is said by many big companies that in future, they will only make electric vehicles.
How to doFundamental analysis of stocks?
Doing a fundamental analysis of the stock is a must task to complete before buying stocks and here we will focus on some of the major points which we should not forget while doing a fundamental analysis of stocks.
- Long- term prospects of the company- You need to gather or collect evidence in the financial statements or annual reports of the company that answers 2 questions: What makes this company grow? Where do and where will the profits of company come from?
Look for companies that:
- Have a wideMoator competitive advantage than other companies. Example; Tata motors EV
Tata motorshave a competitive advantage over other electric car manufacturing company as it hasTata powerfor charging stations,Tata steelfor its steel,Tata chemicalsfor the battery.Tata consultancy service (TCS)for its software will help it to make quality electric vehicles at low cost than its competitors.
- Prefer to run marathons and not sprints
- Focus on what it is sowing.
- Management competency- Look for the management that says what they will do, and what they have said earlier. A good management always accept their failures and take the full responsibility for their mistakes.
The one quality which the management must have isINTEGRITY.
Earlier the management of tata motors declared that they will convert tata motors from a loss-making company to a positive cash flow company by 2025.
- Financial strength and capital structure- One thing to always keep in mind is that ‘ A good business always generates more cash than it consumes’.
See in thecash flowsstatements of the company whether the cash from its operations activities has grown steadily over the previous 10 years.
- Dividend record– One of the most important test of high-quality companies is an uninterrupted records of paying dividends to its shareholders going back over many years(10) years preferred .
Some of the companies that are paying regular dividends for the past 10 years areInfosys,Wipro.
But growth stocks tend to invest their profit back into their companies to make their company grow.
Generally, the companies which have high cash reserves pay dividends to their shareholders
- Look at the financial ratios of the stocks- For example
Pe ratio, Pb ratio, Quarters results, Cash flow statements, PEG ratio.
Stock analysis websites
Like living legendWarren Buffetyou don’t have to read Moody’s book to search for possible stock, in fact, in current time there are many websites that will help you to see all those financial ratios on a single screen. These are the websites that I personally use
- Screener
- Ticker tape
Stock analysis report
For your help, there are many brokerage companies likeMotilal Oswal,Icici direct, Jp morgan, which publish their research documents on their websites about a company in which they tell about
What could be the future price of the stock in the near term like 6 months down the line or 1 year down the line?. . What is the risk involved in buying that stocks? And many other things
One such example is given below,
Earlier when Trident stock was trading at 19 rs a share then the Motilal Oswal gave the future target of the stock at 25 rs in a year and now it has zoomed to 52 rs a share. For your convenience, you can click and read this report
https://www.motilaloswal.com/site/rreports/637647019652421122.pdf
copy and paste this link to get the pdf of the research report by Motilal Oswal Trident target limited.
I hope you liked the article and if helps you to understand something then don’t forget to give your valuable feedback.
