4 Ways to Pick A Good Stock In Indian Stock Market

Picking up a stock is not an easy task. Many people think that they would earn a significant amount of return from the stock trading. However, this is not the case. Picking the right stocks is an important factor when it comes to receive potential returns from the stock market.  For that you have to go through a number of financial blogs, financial magazines and get subscribed to stock tips from numerous brokers.

This cannot happen in one day; it requires a lot of patience and experience to earn positive returns from the stock market. If you are a smart investor who wants to gain consistent return from the stock market, you have come to the right place.

Before taking a sneak peek into picking the right stock, lets understand what exactly is potential stock:

Stocks that are desired to give expected returns against investments are known as potential stocks. Such stocks are often categorized into undervalued stocks.

In this article, we will discuss the essential steps you need to follow while picking the right stock:

1. Does the Company Have Good Fundamentals?

It is good to invest in a company that is fundamentally strong. This is because a financially wealthy company provides you better returns than other companies. In case, if a company is not financially strong, then you have to explore the products or services offered by that company. This will give you a clear idea about the company's financial potential strength.

You can go ahead with the same steps only once you have believed that the company’s past performance is good enough that leads you to attractive returns. Hence for a successful stock market trading, it would be ideal to invest in such stocks which are fundamentally strong.

Here are the 8 financial factors that need to determine whether the company is financially stable or not.

• Earnings per share: Checkout the EPS of a company for 5 years. If EPS is consistently increasing, then you may consider the company is growing.
• Price to Earning Ratio: Price to earning ratio should be low as compared to other companies.
• Price to Book Value: Price to book ratio should be low as compared to other companies in the same industry.
• Return on equity: ROE should be greater than 20%
• Dividend should be increasing for the last 5 years.

2. Diversify your Portfolio in Numerous Stocks

You may have heard the famous quote” Not put all of your money in one basket. The quote simply depicts diversifying your money in different stocks. Diversification of stocks is necessary because if one stock is not performing the best doesn't mean that another one is also not performing well.

Diversification strategy prevents you from suffering huge losses.

3. Preservation of Capital is a Must

As a smart investor, you need to preserve your capital while minimizing risks. You must be aware of the fact that how much risk you can bear while investing in these stocks. It is suggested to pick stocks for the long term.

4. Avoid Investments that are Emotional Driven

When the stock market fell down during the pandemic, many investors thought that the stocks would never gain high value and hence they sold their stocks so as to minimize their losses.

After doing so, investors thought that they took an informed decision but it was more of an emotional decision.

After four months, the markets have started to recover and hence the stocks started to regain its potential strength. Had the investors not sold their stocks during the pandemic, their losses would have been curbed.

Takeaway

Nevertheless, stocks can provide you better returns if they are selected for decades. Stocks provide flexibility, transparency and liquidity and hence the selection should be done in a proper way. If you are a newbie who wants to pick the stocks for better investments, need a thorough stock market research.

Try Swastika Investmart. Swastika offers the best tips and recommendations to beginners as well as professionals. To give a detailed insight, contact at https://swastika.co.in/contact-us