In this article, we will cover
- How to Invest in Stocks for Long Term
- List of Best Long Term Stocks to Buy now in India
- Detailed profile, pros, and cons of stocks in the model portfolio
- Detailed Overview of the Best Long Term Stocks
- Model Portfolio of Best Long Term Stocks
- A detailed table with various parameters for Best Long term Stocks to buy
How to Invest in Best Stocks for Long Term
Investors are often advised to invest in stocks for the long term so as to reap the benefits of compounded growth. Power of compounding is an important concept one needs to understand to really appreciate the benefits of long-term investing. Compounding is similar to a multiplier effect since the interest that is earned by the initial capital also earns interest, and the value of the investment grows at a multiplicative rate rather than an additive rate. The higher the rate of return, the steeper the curve of growth and wealth creation. To give an example, an investment of just ₹1 lakh in year 1 at 10%, invested for 20 years can compound to ₹6.72 lakh giving a phenomenal return of 672% on capital.
Companies run with the objective of primarily earning profits and they strive continuously to grow these profits further. However, in the process, it is the various strategies and decisions taken by them which mould their path to growth. This factor is what differentiates the good companies from the bad ones, the profitable from the unprofitable. The profitable ones generate significant returns for their shareholders.
Growth of a company comes not only with scale but with efficiency in operations and this is a gradual process. Strategies taken by the management make or break the path for growth and as investors we must always study a company’s business model. It is also essential to have a macro perspective while running a business and keep in mind various factors such as government policy, interest rates, stakeholder claims (including debt and equity holders) among others.
The next part involves assessing the industry in which the company lies. An investor should assess how the industry will shape up to analyse if there will be sufficient demand for the company’s growth in the future. For example : a dominant theme that has seen phenomenal growth is the FMCG sector. India is a developing nation with strong growth prospects primarily driven by infrastructure and human capital development along with urbanization in the country. As the country experienced growth in disposable income, the share of processed food consumption grew and companies such as Britannia benefitted. If an investor had invested in Britannia at ₹196 per share in 2010, he would have received 1940% returns in a matter of 10 years. This is the power of compounding.
So if the industry is expected to grow, the company in that sector with strong fundamentals will also prosper if all cards fall on the table. The company still continues to grow on their capability and efficient profitability as India continues to flourish on this theme.
Another successful growth story has been that of HDFC Bank . The financial sector has seen robust growth in the country with the penetration of banking. As banking grew and became formalized, banking stocks saw heavy inflows and grew exponentially. HDFC Bank was a part of this rally with an upward moving trend in its charts. Its revenues have moved from ₹16,314 crore in 2010 to ₹1,70,754 crore in 2023, a growth of nearly 20% CAGR while the stock has moved from ₹210 per share to ₹1,734 per share, growing by about 725% over 10 years, excluding dividends given by the company.
These are examples of how a company grows gradually to generate strong returns for their shareholders and as an investor you must patiently be a part of this entire rally disregarding the smaller ups and downs. Hence, when a company establishes its business and grows, its stock value increases, thereby rewarding the shareholders who stick with the company for the longer term.
List of Long-Term Stocks to Buy now in India
|Sr.no||Company||NSE Code||BSE Code||CMP (27 Oct '23)||Ratings|
|1||Tata Consultancy Services Ltd.||TCS||532540||3,443.85||4.5|
|2||Bajaj Finance Ltd.||BAJFINANCE||500034||7,085||5|
|3||Godrej Consumer Products Ltd.||GODREJCP||532424||999.60||3|
|6||Avanti Feeds Ltd.||AVANTIFEED||512573||394.80||2|
|7||Bajaj Auto Ltd.||BAJAJ-AUTO||532977||5950.90||5|
|8||Berger Paints India Ltd.||BERGEPAINT||509480||574.55||3|
|9||Coromandel International Ltd.||COROMANDEL||506395||1122.40||3|
|10||Dixon Technologies (India) Ltd.||DIXON||540699||5307.30||0.5|
|11||HCL Technologies Ltd.||HCLTECH||532281||1315.10||4|
|12||Hindustan Aeronautics Ltd.||HAL||541154||1912.7||0.5|
|13||ICICI Bank Ltd.||ICICIBANK||532174||924.25||4|
|14||KEI Industries Ltd.||KEI||517569||2760.50||0.5|
|17||Oracle Financial Services Software Ltd.||OFSS||532466||4031.60||4|
|18||Polycab India Ltd.||POLYCAB||542652||5198.05||1|
|19||Tata Elxsi Ltd.||TATAELXSI||500408||8,260||3|
|20||Varun Beverages Ltd.||VBL||540180||926.2||1|
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You can watch our episode of The Right Choices with Oracles of Dalal Street on How to pick stocks for long term with Khushal Jhaveri
Episode 1: Long-Term Investing Strategy
Detailed profile, pros, and cons of stocks in the model portfolio
Assess the Sector/Industry Segment of the Company
An investor needs to first look at the sector the company currently conducts its business in. This is crucial to understand as the sector which has strong growth potential can offer higher growth of value to the investor. Strong growth potential can come from having scope to either expand or penetrate further into the market or both. If the sector also provides more headroom for increased pricing over time as it expands, that will only benefit companies further. An investor should also assess the number of participants in the sector and the intensity of the competition to determine the growth opportunities and threats it might face going forward. There are industries which have low barriers to entry wherein it is easy to set up a business and compete. If the industry size itself has high growth potential, a larger number of players can profitably coexist. An example of this is the FMCG industry where there are a large number of competitors offering a wide range of products yet the scope of penetration and expansion is high enough for multiple companies to co-exist profitably. On the other hand, in a mature, low-growth industry, even a small number of players can have a huge impact on their competitors’ profitability.
Industry Potential to Provide Value
Companies in intensely competitive industries will experience greater pressure on their profit margins. Hence, the more preferable option is to look for those companies that rise up the ranks to become one of the top players in the given sector, can navigate well in the sector and ensure strong financials despite the competition. Also, look for companies for whom growth potential exists in the form of moving up the value chain in the low-growth sector. For example: Telecom companies moving from voice offerings to data and related services has not only generated a new revenue stream, but has also expanded the overall sector and various other opportunities. Look for companies which are able to build sustainable competitive advantages against other players in the sector. Companies in high-growth industries tend to have better prospects than those in mature industries. In the end, one must consider that an industry with large opportunity is also likely to attract more competition. The balance between the two contrasting factors of industry potential and competitive intensity must be assessed to determine the opportunity available.
Level of Regulation And Dependency
Investors need to check the level of regulation that goes into a given sector. The primary reason for regulation is to protect the consumer and the government’s interests over that of the company. This results in value erosion as the benefits that would have come to the company are transferred over to the consumer and the government, leaving very little for the company’s shareholders. An example of this is the coal industry in India. The industry has been under heavy regulation regarding mining and pricing and was monopolistic with mining rights given to Coal India only. Another example is of the power utility companies regulated by the government. These companies cannot earn excess returns above stipulated limits. Industries such as consumer goods, automobiles, paints and electrical items can be easily produced and sold in India without any significant government regulation. Higher the regulatory handle, higher is the regulatory risk as such businesses’ revenues and profits are, to a certain extent, in control of the government and can affect value generation and growth adversely.
Dependence on The Economic Cycle
The economy of any country moves in cycles which is cumulative of all other industry cycles. As GDP grows, so does production, employment and incomes of consumers which results in the rise of demand for products. Similarly, when GDP growth slows or falls, it results in the fall of production, employment and incomes. Sectors such as airlines, cement, metals, infrastructure, housing, banking and finance are examples of cyclical industries. Industries such as consumer staples, information technology and pharmaceuticals are comparatively immune to economic cycles thereby weathering through down cycle stress for an industry. Given their relative resistance to economic cycles, these sectors are relatively more stable financial performers and investors are usually willing to assign premium valuations to these firms for their stability. Lower dependence on the economic cycles also means that the companies do not come under stress when the economy faces a downturn and thereby provide some hedge to the portfolio from such downturns.
Return Generation for Shareholders
To assess this aspect, an investor needs to calculate certain ratios to determine the return generation as well as the quality of earnings. One such ratio is the ROCE which indicates the efficiency with which the company utilizes its capital and the return it generates on that capital. While this ratio is a good indicator, it should be used in conjunction with the cost of capital to determine the net return earned by the company. Another ratio to look at is the ROE which tells an investor how much of the profit is attributable to the shareholder and the quantum by which it grows the value of the company. This ratio is to be assessed in conjunction with the Cost of Equity. The higher the ROE is over the COE, the better it is. Also assess the Operating Cash Flow/EBITDA which allows investors to ascertain a company’s ability to convert operating profits into operating cash flows. A low ratio may be indicative of aggressive revenue recognition practices.
Among the most important factors in evaluating a business is the quality of its management. Efficient management teams will not only see through the various challenges facing an industry and navigate through them, but also transform their business models towards more attractive industries and higher growth of value of the business. Assess whether the board of directors and the management are different from each other as the BOD is responsible for larger company decisions while the management is engaged in the daily activities. Hence, the process of running a company involves balancing relationships and interests between the board, the promoters, the management, minority shareholders, auditors as well as other stakeholders. The efficient handling of this balance indicates the strength of corporate governance. The higher and better the standards of corporate governance are, the better protected the minority shareholders of the company are and can be assured that the management will act for the benefit of shareholders. This can be ascertained by going through the annual report. While there are many other factors which are to be assessed by investors, the above-mentioned ones are key factors to assess and find long term wealth builders.
Detailed Overview of the Best Long Term Stocks
The IT sector has been a winner over the long term and after being the heroes of the post-pandemic era the sector has given a healthy correction over the past couple of months making the earnings multiple decent for an entry. Amongst them, Tata Consultancy Services (TCS) is one of the best players.
TCS’ superior execution metrics, full stack portfolio (better deal count across verticals) and industry drivers (uptick in E&U and Travel & Hospitality sub-verticals) will support growth
The average order book size which used to be in the US$ 6-7 billion range in FY 2021 touched the US $ 8.1 billion range in FY 2023. The core order book size excluding any occasional mega deal expands each year. The quality of revenue keeps rising with higher value engagements for sustained longer-term growth. Operating margins stood at 26.2%, the highest among the pack. The company’s attrition rate in IT services was 14.9% as of Q2FY23 which is the lowest in the industry
The company has a large, diversified, and growing client base with meaningful incremental addition of clients in the above USD 20 million, USD 50 million, and USD 100 million buckets from previous fiscals, and its superior execution ability has resulted in high repeat business which provides stability to the revenue stream.
The company has delivered strong financial performance, The Revenue in Q2FY23 grew by 7.9% YoY in rupee terms. The stock carries premium valuations vs. its peers at a PE ratio of 28.6 times vs. the industry average PE ratio of 27.4 times. While the PE ratio is higher, the premium is justified as TCS has also delivered industry-leading growth and returns for shareholders, making it attractive at the price offered. Digital transformation deals are no longer discretionary as clients continue to spend, despite their sector being in an Economic down-cycle.
An improvement in utilization, operation, and realization, moderation in subcontract expenses, and a decline in attrition are key factors that will aid margin expansion in the short term. The jittery in the current global macro-economic and cross-currency headwinds remains a key risk for the company.
ICICI Bank is one of India’s top private-sector banks. As of March 31, 2023, the bank’s consolidated total asset was at INR 19.6 lakh crore. In India, the bank operates 6,248 branches and 13,927 ATMs.
The bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its group companies.
Post the joining of Mr. Sandeep Bakshi in Oct’18, the bank has been on a transformational journey. The bank has significantly improved its underwriting practices and it is clearly visible from its improving asset quality numbers. The bank’s GNPAs stood at 8.84% in FY18 and now stand at 3.8% as of FY22.
ICICI Bank has altered itself from a corporate-focused bank to a retail bank in the last 6 years. This would result in a sustainable lower risk high yielding lending book. The bank’s retail share increased to 62% in FY22 from 37% in FY13.
The bank’s Net Interest Margin (NIM) has been on a consistent rise thanks to its change in loan mix and steady fall in its non-performing assets. Over the last three years, the bank’s NIM improved from 3.19% to 4.53% in Q2FY24. This in turn has resulted in an improved Return on Equity (ROE) to 16.6% from 15% in FY21.
The banking sector seems to be coming out of the woods with Industry credit growth picking up pace at 14% in FY23. ICICI Bank being one of the biggest banks in India is bound to be a key beneficiary of demand pick-up. This was visible in its strong credit growth of 19.3% in Q2FY24.
The bank’s strong asset quality improvement, increased focus on the granular retail book and robust core operating profit should translate into healthy earnings growth over the next couple of years. However, maintaining that asset quality would remain a pillar in the long run.
The NBFC sector primarily entails lending activities such as consumer loans, gold loans, personal loans, etc. but are different from banks as they do not take deposits from people. These companies rather borrow money from one institution and lend it out to consumers, thereby earning the interest differential between its lending and borrowing activities. This segment has been seeing rapid growth as the country sees an increase in disposable income and shift towards consumerism by Indians.
Bajaj Finance primarily operates in the consumer lending space, wherein it gives consumers loans for personal consumption purposes. The company has therefore seen a massive rate of growth driven by a fast rate of adoption and penetration of their lending, driven by their strong network across the country.
Bajaj Finance (BAF) has been able to gain market share at a good pace led by an extensive distribution network. The current environment, where the macros are improving and the credit demand getting back puts BAF in a good position. BAF still stands out for its a) retail, granular loan book, b) Strong distribution with Tech focus-based Model, c) proven track record, d) superior rating d) Largest cross-selling on multiple Products.
Bajaj Finance has delivered strong performance aided by a diversified product mix, robust volume growth, prudent liability management, efficient operating costs, and effective risk management. With a standalone AUM of Rs 146,743 crore and a consolidated AUM of Rs 197,452 crore for FY22, the Company has emerged as one of the leading diversified NBFCs in the country today.
On financials, the company has delivered a ROE of 17.7% a robust growth in Net Profits of 30.8% CAGR over the last 5 years. It has also delivered strong growth in the AUM at 24.41% CAGR on a consolidated basis over the same period. Despite the strong profit and AUM growth, it has maintained the quality of the book with an industry-leading low net NPA of just 0.68% for FY22 (consolidated), indicating that the loan book remains strong. Bajaj Finance employs a strategy of maintaining a longer duration for liabilities than assets, coupled with an optimal mix of borrowings between banks, money markets, external commercial borrowings and deposits which have helped the company effectively grow its net interest income (NII) at 35% CAGR (15 years).
The company faces risk in case of defaults from customers, resulting in the deterioration of the AUM quality of the company. Another risk may emerge from the interest rate cycle movement, which may impact the NIMs of the company, and therefore the income earned. Investors need to carefully observe the interest rate nature as well as the overall economic condition to assess the performance of the company.
Godrej Consumer Products Limited (GCPL) is a part of the over 125-year-young Godrej Group. Its portfolio and heritage are in democratization, and this is what its strategy hinges on- making amazing quality products available at accessible price points. GCPL’s geographic footprint comprises some of the largest and fastest-growing emerging economies in the world. However, its top categories in these countries, such as Household Insecticides, Air Care, and Hair Colour, are underdeveloped, with significant headroom for growth. The firm sees this as a huge opportunity for value creation via the application of its winning strategies for category development. As category leaders, the strategy is to ramp up innovation-led growth and discover new ways to disrupt its categories.
New strategic pillars and philosophy adopted by the New MD & CEO, Mr. Sudhir Sitapati are expected to unleash the incredible potential of the company and propel it into its next phase of growth. His strategic clarity and excellent execution capabilities have already started impacting the company positively. The number one priority is to bring the volume growth back. GCPL will also focus on household insecticides and the growth of its Indonesia business, while profitability and governance will be targeted in Africa.
As the company’s renewed strategy takes center stage, it is likely to experience a turnaround in its domestic and international business, as well as an improvement in financials. The clear plan for the business is to achieve the ambition of double-digit volume growth in the medium term.
However, competitive market conditions and new entrants to the market may lead to an aggressive product pricing strategy. The company delivered modest financial results in FY23 grew as the company remained vulnerable to raw material price fluctuations and a slowdown in the rural economy.
ITC is engaged in multiple consumer businesses ranging from cigarettes to food products and stationery. The company generates about 40% of its revenues from cigarette sales and has the highest market share in cigarettes (over 75% market share in India). The cigarette market has growth opportunities as the market moves from an unorganized to an organized segment which will result in market consolidation and huge market share gains for ITC. While India is the world’s second-largest consumer of tobacco, legal cigarettes constitute only 8% of overall tobacco consumption in India, as against a global average of 90%, indicating the immense growth opportunities in the segment.
Its second-largest segment FMCG is where the company has been putting efforts to derive the highest revenues and it has become its highest growth segment. ITC is known for its healthy internal cash accrual, low debt, and robust liquidity. The company displayed good growth in financials. Its FMCG business has shown resilience by playing an exception to global economic doom. Competition from the likes of HUL, Nestle, and Britannia but ITC is expanding at a rapid scale.
The structural drivers of long-term growth such as professionally managed teams, rising disposable incomes & consumer awareness, low levels of penetration of consumer goods, favorable demographics and increasing urbanization amongst others, remain firmly in place which augurs well for the FMCG industry. Other products sold by the company include agri-products, paper products and IT solutions.
The company has delivered strong operational performance over the years, with consistent profit and revenue growth of 11.7% and 10.3% CAGR over the past 5 years while delivering a ROE of 29.1% and ROCE of 39.1% over the same period. It also offers investors a strong dividend yield of 3.46%
However, the company faces risks from regulation for the cigarette industry which can impact the pricing power for ITC, impacting revenues and growth. Another risk is from competitors as the industry sees intense competition, hence the company needs to be very proactive with its strategy.
Watch this video to understand, how to select Best Long Term Stocks
Model Portfolio of Best Long Term Stocks
In order to get an exposure to best stocks for the long term, you need a total of ₹53,803 for the below-curated portfolio as of 15th September, 2022.
You can check the live prices and trade India’s best large cap stocks at the lowest brokerage with SAMCO, India’s leading discount brokerage. Open a Free Demat and Trading Account today!
|Company Name||Weightage||CMP||No. of stocks||Amount|
|Godrej Consumer Products||14.9%||999.6||8||7905|
Best Long Term stocks to buy: A detailed table with various parameters
You can check the live prices and trade in these or any other Long Term stocks at the lowest brokerage with SAMCO, India’s leading discount brokerage. Open a Free Demat and Trading Account today!
|Sr.No||Accord Code||Company||NSE Code||BSE Code||CMP (27 Oct '23)||Ratings||Market Cap||P/E||OPM||ROE||ROCE||D/E|
|1||132540||Tata Consultancy Services Ltd.||TCS||532540|
|2||100034||Bajaj Finance Ltd.||BAJFINANCE||500034|
|3||132424||Godrej Consumer Products Ltd.||GODREJCP||532424|
|6||112573||Avanti Feeds Ltd.||AVANTIFEED||512573|
|7||200132||Bajaj Auto Ltd.||BAJAJ-AUTO||532977|
|8||109480||Berger Paints India Ltd.||BERGEPAINT||509480|
|9||106395||Coromandel International Ltd.||COROMANDEL||506395|
|10||210072||Dixon Technologies (India) Ltd.||DIXON||540699|
|11||132281||HCL Technologies Ltd.||HCLTECH||532281|
|12||219494||Hindustan Aeronautics Ltd.||HAL||541154|
|13||132174||ICICI Bank Ltd.||ICICIBANK||532174|
|14||117569||KEI Industries Ltd.||KEI||517569|
|17||132466||Oracle Financial Services Software Ltd.||OFSS||532466|
|18||211337||Polycab India Ltd.||POLYCAB||542652|
|19||100408||Tata Elxsi Ltd.||TATAELXSI||500408|
|20||209550||Varun Beverages Ltd.||VBL||540180|
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