Best Fundamentally Strong Stocks in India

You must have heard about houses or any kind of infrastructure that has collapsed while being constructed. When being investigated, the reason behind most of the collapses is the poor foundation. This signifies how important the foundation is when it comes to building a house. Similarly, having proper fundamentals is very important when you are willing to build a proper and strong investment portfolio.

By investing in monetarily strengthened companies, you will be able to earn a handsome return on investment while keeping your investment funds safe and secured during bad market conditions. Yet, before all of this, first, you need to find out what these fundamentally strong companies are and how you can purchase their stocks.

In this article, we will help you find out more about fundamentally strong companies and how you can invest in their stocks through Indian stock exchanges. Here you can find the list of the best Fundamentally Strong Stocks to Invest in India, ensuring a solid foundation for your investment journey.

Best Fundamentally Strong Stocks to Invest in India

Find out the fundamentally strong stocks in India for long-term investment from the table below:

About Fundamentally Strong Companies

The companies that are fundamentally strong have multiple and robust underlying businesses. That is how they can survive the market even in bad conditions. When the other company shares are bleeding at the time of the stock market condition, the stocks of the fundamental companies remain far better than others.

How to find Fundamentally Strong Stocks

There are multiple factors that can determine if a company is fundamentally strong enough and if you want to receive meaningful information about these companies then you need to look at them all together and not individually. The metrics you should use in order to evaluate the strength of these fundamentally strong companies are profitability, debt, business model, products and services, management, capital, etc. Let us look at some of them below:

Debt and capital

Since finance is an extremely necessary component in order to run any and every business, a fundamentally strong company has to have a lot of funds at its expense. Moreover, a fundamentally strong company has enough funds to

• Fund the development of new projects
• Run everyday business
• Purchase necessary assets
• Remunerate employees
• Provide capital expenditure
• Fulfill long-term and short-term liabilities

If the company or organization does not have enough funds then it will have to borrow funds from others which will also come at a significant cost. Borrowing funds introduces us to another financial concept which is debt.

The money a company takes as a loan in order to run its business along with the short-term and long-term liabilities is considered debt. The company or organization will have to repay the debt along with the interest (which can also be considered as the cost of the loan). 

If a company is in too much debt, then it will completely eat off the profits of the company which in turn will restrict the organizational growth of the same. That means too much debt is actually a bad thing for business. Therefore, a fundamentally strong company should have a perfect mixture of both debt and capital.

Every type of fund bears a cost which also includes capital as well. While your debt can be considered as an obligation, the equity signifies the ownership of a company (which the shareholders are). Normally, the cost of shares is greater than the cost of debt because while the lender risks their lending funds, the shareholders are bearing the risk of the company as they are considered the owner of the same.

By using the debt-to-equity ratio you will be able to measure the amount of the borrowed sums against the capital. There is no perfect debt-to-equity ratio because it can differ according to different industries.

Management

Although people tend to be replaced, companies remain in the market for a significant amount of time (if not forever). Nevertheless, a company cannot run without people. To be more precise, without a proper management team even companies with the best capital and debt can simply become a waste. 

Therefore, a company needs to have proper skills and attitude in order to perform well in the market. Better company management should have skills, leadership qualities, determination, problem-solving ability, and a developing mindset.

Profitability

When it comes to profitability fundamentally strong companies are always far better than any other businesses. The profitability of a company can be measured through the return on equity or ROE ratio, which can denote the efficacy of a company in utilizing its capital and generating profits from the same. 

You can also check the 5-year CAGR of the company to calculate the returns it has provided to the company’s investors and shareholders in the last 5 years. Although fundamentally strong companies may not perform well in the short term they can definitely perform exceptionally well when it comes to long-term return on investment.

Screening Fundamentally Strong Companies

To separate fundamentally strong stocks from the ordinary, the stock screener employs the following parameters. It filters using the following algorithms (logics):

• Industry Leaders: Our stock market has around 195 industries. Each industry has a set of businesses that operate within it. We only select industry leaders. The decision is based on their revenue. The best companies in the industry are chosen. What is the reasoning? The theory goes that the leading company in an industry should have a large moat.
• Capital vs Expenses: As previously stated, we examine the selected market leaders in terms of their capital base. We examine their entire spending requirement in relation to their equity basis and total capital. All companies that are not in need of funding are chosen for further investigation.

At this point, we only have a few hundred companies on our list. Now, we use the following logic to assign a score to each of these businesses.

Parameters of Scoring

• Debt Dependency: We utilize two metrics to determine if the organization is overly reliant on debt. Our preference is for a low debt-to-equity ratio (D/E) and a high-interest coverage ratio (ICR). All companies that do not meet our debt levels are eliminated.
• Liquidity Position: This is a simple and quick examination. We examine each company's current ratio, current asset vs current liability, and level. All companies with sufficient liquidity receive a higher score.
• Analysis of Profitability: At this stage, we examine how well the corporation uses its money to generate profits. To assess profitability, we employ two ratios: Return on Equity (ROE) and Return on Capital Employed (RoCE). Companies with higher ROE and ROCE are given higher points.
• 10-Year Return: A company that is fundamentally strong may not perform well for its shareholders in the short term, but it does generate above-average returns in the long term. With this thinking in mind, we examine the companies' 10-year returns. All organizations that have not met a minimum standard are given a lower score.

How to Invest in Fundamentally Strong Stocks ?

In India, there are two exchange markets (BSE and NSE) available through which you can invest in the fundamentally strong shares available in India. You also have the option to buy the same directly through the company website or you can utilize the services of a third-party platform such as INDmoney.com.

By signing up on INDmoney.com you can freely choose the company shares you want to invest in and purchase the number of stocks you want according to your budget. The best part about buying stocks through INDmoney.com is that you won’t have to worry about any extra paperwork and the whole process will be effortless. 

To initiate your investment journey with any INDmoney.com follow the steps below:

1. Visit INDmoney.com: Head to INDmoney.com and kickstart your investment journey. Sign up or create your free Demat account to get started.
2. Fill in Essential Details: Complete your profile by providing important information such as your phone number, name, email address, etc. Simplify the process by using your Google account or phone number for a seamless sign-up experience directly on the INDmoney.com website.
3. Complete e-KYC Process: Once signed up, take the next step by providing your Aadhar card number, PAN number, and bank account details to facilitate a quick and secure e-KYC process.
4. Explore Stock Options: With the e-KYC process completed, dive into the world of stocks. Browse through the diverse list of stocks available at https://www.indmoney.com/ and make informed investment decisions that align with your financial goals.

Important Things to Remember

1. Do Not Blindly Follow Hot Tips
   No matter how credible the source is, never follow a stock marketing tip blindly without conducting thorough research personally. Always select the stocks after doing proper research and analysis on the performance as well as the companies. While some tips can work out to give you huge benefits, the wrong ones can push you down under the risk pretty quickly. 
2. Eliminate Loser Stocks from Portfolio 
   There is absolutely no guarantee that a stock will rise after a great fall. Know that it is extremely important to be practical about what is possible and what's impossible in the stock market. So, upon realizing that a stock is performing poorly in your portfolio, accept your mistake and sell it immediately to prevent further losses. 
3. Don't Exceed Your Investment Budget Abruptly 
   While it's true that long-term investments are way better than other forms of investment, you shouldn't exceed your investment budget in a haste. Instead, decide on a fixed amount and invest it across various good stocks. Rather than investing in only one stock, divide your budget evenly across multiple good-performing stocks and shares.