Are you new to stocks and are looking to know which are the best stocks for beginners? Read on!
In today’s evolving world every penny counts.
Amidst this, the capital market has opened an avenue for the building of greater wealth.
A new investor is likely to lose wealth if proper research and strategy are not adopted. Thus, it makes sense to follow a beginners’ guide to investing in stocks.
In this article
Best stocks for beginners
1. Reliance Industries Limited
Reliance Industries Limited (RIL) is India’s largest private sector company.
The company, headquartered in Mumbai, Maharashtra, is a conglomerate with businesses interest in sectors including energy, petrochemicals, textiles, natural resources, retail, and telecommunications.
The company is one of the most profitable companies in India and is the largest publicly traded company by market capitalization.
The company is the nation’s largest exporter accounting for over 8% of India’s total merchandise exports and is also the country’s highest income tax payer in the private sector.
Off late, the stock saw some correction making it an excellent opportunity to buy for those wanting to buy it. The ramp-up of down downstream projects could help the company boost its profit margins for refining and petrochemical businesses.
Additionally, the retail and telecom business is expecting to gain market share.
The unique online-offline retailing strategy is likely to aid business growth and margin expansion for its retail business.
For telecom business, robust subscriber addition, revenue market share gain and launch of broadband services would result in sustained improvement in the financials over the next couple of years.
2. Tata Consultancy Services
Tata Consultancy Services Limited (TCS) is an Indian multinational information technology (IT) service, consulting company headquartered in Mumbai.
The company belongs to the Tata Group and operates in around 45 countries.
TCS is the second largest company in India by market capitalization and is among the most valuable IT services brands worldwide.
The company posted steady Q3FY19 results despite a seasonally weak period.
This growth leads to a sustainable business structure. Steady growth has been seen across verticals, and across various services, this leads to high growth momentum for TCS over the long run and makes it a more robust business structure.
Company’s critical services like IoT, Cybersecurity, Consulting & Services Integration cloud services, etc. have also seen strong pipeline buildup.
There has been strong demand revival across verticals for the company that is likely to help it attain revenue targets going forward. Also, with the emergence of innovative and new technologies and platform-based solutions would keep TCS ahead of its peers. This will help it to build in a long term sustainable business model.
3. HDFC Bank
HDFC Bank Limited (Housing Development Finance Corporation) is an Indian banking and financial services company headquartered in Mumbai, Maharashtra.
The bank in India’s largest private sector lender by assets and by market capitalization.
The bank has a strong network of 4,825 branches and 13,018 ATM’s in 2,666 cities/towns.
The bank reported a healthy loan growth of 24% YoY driven by both retail loans as well as corporate loans.
Also, net interest income grew at a steady pace supported by high business growth. Lastly, the asset quality continues to remain healthy and stable with Gross nonperforming assets (GNPA) ratio at 1.3% and Net NPA (NNPA) ratio at 0.4%.
4. Hindustan Unilever Limited
Hindustan Unilever Limited (HUL) is a subsidiary of Unilever, British-Dutch company. The Mumbai based company has products including foods, beverages, cleaning agents, personal care products and water purifiers.
The company delivered another quarter of robust volume growth that was in line with the expectations of the market. The increase was spread across segments. Regarding profitability, the company managed to improve due to cut down in expenses (particularly employee cost).
The continuous innovation for premiumization of its products and service offerings aimed at providing a world-class experience to customers; the company will continue to see an improvement in margins.
Also, the company’s continuous effort towards cost optimization shall help negate any negative impact it may look due to an upward revision in the price of any commodity.
Lastly, rural India is also likely to support the volume growth on the back of expected improvement in farmer’s income. Thus, the company is expected to sustain its momentum over time thereby becoming an evergreen stock for investors.
5. Maruti Suzuki India Limited
Maruti Suzuki India Limited (MSIL; formerly known as Maruti Udyog Limited) is India’s largest automobile manufacturer in India with around 53% market share. The company is a 56.21% subsidiary of the Japanese car and motorcycle manufacturer Suzuki Motor Corporation. Some of the famous vehicles include the Ciaz, Ertiga, Wagon R, Alto K10, Swift, Celerio, Swift Dzire, Baleno.
MSIL is the only pure-play passenger vehicle OEM in India. The company is poised to benefit over the long-term due to vehicle penetration (28 cars per 1000 people) close to inflection point as seen in other markets such as Japan, South Korea, and China. The company has been aggressively expanding its Nexa model to provide a premium experience to its customers and levers margins from such distribution model.
Also, the company has a strong product pipeline for the next 2-3 years time and is likely to enter in the electric vehicle segment as well in partnership with Toyota.
We believe fundamentals around penetration, rising urban discretionary spends and demographics are attractive.
We think MSIL’s dominance is difficult to challenge given it is far ahead of its competition regarding its scale, cost structure and distribution. India is of utmost strategic importance to Suzuki, unlike global peers.
Tips for beginners
Set Long-Term Goals
Investment in stock market is typically done for five years or even longer. Are you investing for your retirement? Or, you wish to meet the funding requirement of your child’s education. You should be clear about your goal before investing. Your portfolio is dependent on three factors –
- Capital invested
- Net earnings on invested capital
- Period of investment
Understand risk tolerance
Risk tolerance is a psychological trait but is influenced by education, income, and wealth.
Also, it is impacted by age as the risk tolerance decreases when the age increases.
As you gain knowledge about stock investing over time, you can avoid investments that are likely to make you anxious.
As a beginner, it is recommended to go with the big names that can provide stable returns and comes with a high degree of safety.
Emotions don’t work in stocks
It is likely that you will get emotional about the companies in which you invest.
However, this becomes the biggest obstacle to profit booking. It is essential that you consider each of your stocks in the portfolio as pure investment bets and decide concerning fundamentals.
It is okay to book losses, but if you remain emotional, it could be a possibility that the investment may turn junk if you continue to hold and the fundamental behind the stock is not good.
Also remember, short-term movement in stocks are often driven by rumors, speculations, and hopes rather than proper analysis of the company’s assets, management, and prospects. So, never have a myopic view while investing for the first time.
Diversify your portfolio
As a newbie, you should not make the mistake of considering yourself as Warren Buffet or Rakesh Jhunjhunwala.
While these investors may have identified one name where they invested their money in creating a fortune, it is always good to start safe if you are a novice.
Thus, you should diversify the risk of one stock and invest in multiple stocks.
But remember over-diversification is also not good and therefore you need to cautious about some stocks that you select from each sector in the portfolio.
These days brokers offer margin trading that is over 4-5 times the margin amount.
People tend to get greedy and end up investing beyond their capacity. This is done with an anticipation that they can close their position in a couple of days and would generate profit without having to pay the entire value of the stock.
For example, assume the margin is 10% of the stock, and you have Rs 1000 in your account to invest. The price of the stock is Rs 1000. You can ideally get only one stock. But brokers offer you more shares on margin.
Margin money for each stock is 10% x 1000 = Rs 100.
The money you have = Rs 1000
Number of stocks you can purchase = Rs 1000/100
You end up buying ten stocks by paying a margin of Rs 1000 considering that you will sell the stock in two days and you will not have to pay broker the full 10000.
But this may not work in your favor always because the future is uncertain and the stock on which you are betting may slip in two days. The decline could as high as 50% in two days, and in such a scenario, you will lose huge money.
So it is better to invest only with the capital you have. Opting for the margin route is not advisable for beginners.
Disclaimer: the views expressed here are of the author and do not reflect those of Groww.