Stock market information includes assessments of sectors that are going to perform well in the coming years, which motivates investment in stocks in this sector. Do not invest unless you have expert knowledge of the sectors.
Most sectors, especially pharma, banking, telecom and technology, have unique characteristics. Therefore, without understanding the sectors, it is not possible to know when to exit. So use fundamentals based selection method to select stocks.
Check out the basic features
Picking a stock based on a company’s performance in a few quarters or management’s guidance for the next quarter can be risky. At least ten years of performance should be checked to assess the fundamentals of companies while selecting stocks for investment.
Public sector companies
Government-owned public sector companies can be chosen for long-term investment. Monopoly rights in specific areas, sound financial base and continuous profit sharing can be obtained from such companies. HAL in the defense sector is a private sector public sector organization.
Investments in Coal India and ONGC will yield attractive dividends. Therefore, PSUs can be invested based on merit. But it has to be remembered that the capital allocation of companies is a government policy.
Restricted areas
Companies in highly regulated sectors will face a major crisis. This can lead to years of reduced income. An example of this is the telecom sector. It is better to avoid companies with such risks.
Company Auditing
The annual reports of the companies should be listened to and the opinions of the auditors should be evaluated. Opinions about the health of the company are clues for making investment decisions. Along with this, you should know about inter company transactions. In case of companies with subsidiaries, this should be taken care of.
Capital allocation
Management needs to know how capital is being used. Return on Equity and Debt Equity Ratio will help for this. If the company is in a high-growth sector, the company’s nature, value, and acquisition potential should be thoroughly studied