Investors in the stock market invest typically for one of two reasons:

They believe that the price will rise and allow them to sell the stock at a profit, or they intend to collect the dividends paid on the stock as investment income.

But there are some stocks that can satisfy both objectives, at least to some extent, but most stocks can be classified into one of three categories: income, value, and growth.

Investors who understand the characteristics of each type of stock can use this knowledge to grow their portfolios more efficiently.

In this blog, I will take you through all three type of stocks and the best stocks in each category you can consider buying.  Read On!

Income Stocks

The stocks that offer regular and steady income to its investors, usually in the form of dividends, over a period of time with low exposure to risk are known as Income stocks.

These stocks are stable but provide a high dividend yield.

Or to put it in simple words, it is a method used to measure the amount of cash flow you are getting for each rupee you invest in a stock.

It is an easy way to compare the relative attractiveness of various dividend-paying stocks in the market. Along with telling an investor the yield he/she can expect by purchasing a stock.

Most bluechip companies pay a regular quarterly dividend around the same time every year and are predictable to investors.

Although these stocks are less risky and pay frequent dividends, their return will likely be lower than value and growth stocks.

Top 3 Income Stocks In India

1. Tata Consultancy Services Ltd. 

Tata Consultancy Services Ltd. (TCS) is an Indian multinational information technology (IT) service and consulting company headquartered in Mumbai, Maharashtra.

It is a part of the Tata Group and has its operation in around 46 countries.

TCS is the 2nd largest Indian company, after RIL, by market capitalization and is now placed among the most valuable IT service brands worldwide.

In April 2018, TCS became the 1st Indian IT company and 2nd Indian company ever (after RIL) to reach $100 billion market capitalization, after it’s market capitalization stood at Rs 6,79,332.81 crore in Bombay Stock Exchange (BSE).

Performance of the Stock

ParametersBSENSE
Current Price (₹)2129.502130.0
1 Year Profit / Loss (%)9.599.49
3 Year Profit / Loss (%)62.8462.87
5 Year Profit / Loss (%)106.50106.55
Beta (1 year)0.330.33
Avg. Daily Volatility (% on year basis)1.471.50

Key Market Indicators

Market Cap (₹ Cr)7,99,070
Book Value (₹)259.59
P/E25.37
Industry P/E
31.93
P/B9.48
Dividend Yield (%)1.41
Return on Equity (%)
35.18

Note: All the above values as on 29/07/2019

2. HEG Ltd.

HEG Ltd. is a premier company of the LNJ Bhilwara Group and is currently India’s leading graphite electrode manufacturer.

HEG Ltd. manufacturing site has one of the largest integrated graphite electrode plant in the world which processes sophisticated UHP (Ultra High Power) Electrodes.

Performance of the Stock

ParametersBSENSE
Current Price (₹)1,068.301,069.20
1 Year Profit / Loss (%) – 74.14 – 74.18
3 Year Profit / Loss (%)470.51470.56
5 Year Profit / Loss (%)625.81625.85
Beta (1 year)1.641.62
Avg. Daily Volatility (% on year basis)3.703.68

Key Market Indicators

Market Cap (₹ Cr)4,123
Book Value (₹)493.88
P/E1.36
Industry P/E24.86
P/B1.09
Dividend Yield (%)7.49
Return on Equity (%)57.63

Note: All the above values as on 29/07/2019

3. Procter & Gamble Health Ltd.

Merck Limited is now Procter & Gamble Health Limited.

Since 1837, P&G has built a rich heritage of touching consumers’ lives worldwide with brands that make life a little better every day.

The Company touches and improves the lives of an estimated 4.4 billion people around the world with its portfolio of trusted, quality brands.

Performance of the Stock

ParametersBSENSE
Current Price (₹)4700.504701.0
1 Year Profit / Loss (%)107.86108.01
3 Year Profit / Loss (%)566.67566.97
5 Year Profit / Loss (%)558.91559.60
Beta (1 year)1.151.13
Avg. Daily Volatility (% on year basis)2.832.85

Key Market Indicators

Market Cap (₹ Cr)7,802
Book Value (₹)952.33
P/E9.30
Industry P/E
17.75
P/B4.94
Dividend Yield (%)9.36
Return on Equity (%)
35.18

Note: All the above values as on 29/07/2019

Value Stocks

Undervalued companies can often provide long-term profits for those investors who do their homework correctly.

A value stock trades at a price below where it appears it should be based on its financial status and technical trading indicators.

The stock price may also have dropped due to public perception regarding factors that have little to do with the company’s current operations.

Here are some characteristics to identify value stocks are:

  • The price-earnings ratio (P/E) should be in the bottom 10% of all companies.
  • A price to earnings growth ratio (PEG) should be less than 1, which indicates the company is undervalued.
  • There should be at least as much equity as debt.
  • Current assets at twice current liabilities.
  • Share price at tangible book value or less.
Some investors use more criteria, but these will get you started in identifying value stocks.

Top 3 Indian Value stocks

1. GHCL Ltd.

Incorporated in the year 1983, GHCL Ltd. is a small-cap company and engaged in the business of manufacturing and trading of inorganic chemicals, home textiles and wind power generation.

The company’s specialty is in Soda Ash, Home Textiles (Bedsheets, Duvet sets, Comforter sets), Yarn, Edible Salt (IFLO and SAPAN), and Industrial grade salt.

Performance of the Stock

ParametersBSENSE
Current Price (₹)209.75209.50
1 Year Profit / Loss (%) – 15.66 – 16.01
3 Year Profit / Loss (%) – 7.90 – 7.23
5 Year Profit / Loss (%)255.59255.65
Beta (1 year)1.121.13
Avg. Daily Volatility (% on year basis)2.112.15

Key Market Indicators

Market Cap (₹ Cr)2,069 Cr
Book Value (₹)196.42
P/E5.89
Industry P/E24.92
P/B1.24
Dividend Yield (%)2.05
Return on Equity (%)17.49

Note: All the above values as on 29/07/2019

2. Aarti Industries Ltd.

Incorporated in the year 1984, Aarti Industries Ltd. is an Indian chemical manufacturing company headquartered in Mumbai.

It operates in four segments: basic chemicals, specialty chemicals, agrochemicals, and pharmaceuticals.

Aarti Industries Ltd. is one of the leading suppliers to global manufacturers of Dyes, Pigments, Agrochemicals, Pharmaceuticals, and rubber chemicals and has 16 manufacturing plants spread across Maharashtra and Gujarat.

Performance of the Stock

ParametersBSENSE
Current Price (₹)1623.351623.10
1 Year Profit / Loss (%)32.5232.95
3 Year Profit / Loss (%)193.14193.23
5 Year Profit / Loss (%)653.59653.65
Beta (1 year)0.780.79
Avg. Daily Volatility (% on year basis)1.951.93

Key Market Indicators

Market Cap (₹ Cr)14,114
Book Value (₹)318.60
P/E39.91
Industry P/E25.35
P/B5.96
Dividend Yield (%)0.06
Return on Equity (%)17.49

Note: All the above values as on 29/07/2019

3. NIIT Technologies Ltd.

Incorporated in the year 1992, NIIT Technologies Ltd. is an Information Technology (IT) service provider mid-cap company.

It offers IT services including application development and maintenance, infrastructure management, and business process management to its customers across travel, transportation, banking, and financial services, insurance, manufacturing, and media sectors.

With over 10,000 employees serving clients across the Americas, Europe, Asia, and Australia, NIIT Technologies Ltd. is one of the fastest-growing IT company and fosters a culture that promotes innovation and constantly seeks to find new yet simple ways to add value for its clients.

Performance of the Stock

ParametersBSENSE
Current Price (₹)1200.151201.75
1 Year Profit / Loss (%)– 2.09– 2.11
3 Year Profit / Loss (%)167.12167.76
5 Year Profit / Loss (%)220.88220.01
Beta (1 year)1.000.95
Avg. Daily Volatility (% on year basis)2.142.16

Key Market Indicators

Market Cap (₹ Cr)7,483
Book Value (₹)333.41
P/E26.55
Industry P/E31.72
P/B3.74
Dividend Yield (%)1.24
Return on Equity (%)19.46

Note: All the above values as on 29/07/2019

Growth Stocks

Growth stocks have some common characteristics, although individual investors may tweak the numbers for their own purposes.

As the name implies, growth stocks are the stocks of companies by definition are those that have substantial potential for growth in the foreseeable future.

Growth companies may currently be growing at a faster rate than the overall markets, and they often devote most of their current revenue toward further expansion.

Here are some of the indicators:

  • The strong growth rate of the company both historic and projected forward. Historically, you want to see smaller companies with a 10% plus growth rate for the past five years and larger companies with 5% – 7%.
  • Strong Return on Equity (ROE)
  • Strong EPS, especially look at pre-tax profit margins.

If the stock meets or roughly meets these criteria, you are probably looking at a growth stock.

However, you need to use some judgment and common sense. A stock may not meet all of the criteria above, but could still be a growth stock.

Top 3 Growth Stocks In India

1. Asian Paints Ltd.

Asian Paints Ltd. is an Indian multinational paint company incorporated in the year 1945 and headquartered in Mumbai, Maharashtra.

The company’s product portfolio comprises of paints, coating, products related to home decor, bath fittings and providing of related services.

It is India’s largest (having more than 50% market share) and Asia’s 3rd largest paints corporation.

Performance of the Stock

ParametersBSENSE
Current Price (₹)1513.001513.15
1 Year Profit / Loss (%)4.134.75
3 Year Profit / Loss (%)35.9535.93
5 Year Profit / Loss (%)139.65139.64
Beta (1 year)0.960.95
Avg. Daily Volatility (% on year basis)1.461.46

Key Market Indicators

Market Cap (₹ Cr)1,44,657
Book Value (₹)97.92
P/E68.75
Industry P/E33.66
P/B14.92
Dividend Yield (%)0.60
Return on Equity (%)24.25

Note: All the above values as on 29/07/2019

2. Reliance Industries Ltd.

Reliance Industries Ltd. (RIL) is an Indian conglomerate holding company incorporated in the year 1973 and headquartered in Mumbai, Maharashtra.

It is engaged in the business of energy, petrochemicals, textiles, natural resources, retail, and telecommunications.

RIL is ranked 148th on the Fortune Global 500, 2018 list of the world’s biggest corporations, and is one of the most profitable companies in India, it is also the largest publicly traded company in India by market capitalization, and the 2nd largest company in India as measured by revenue.

On 18 October 2007, RIL became the first Indian company to cross USD 100 billion market capitalization.

Performance of the Stock

ParametersBSENSE
Current Price (₹)1178.801178.80
1 Year Profit / Loss (%) – 0.44– 0.56
3 Year Profit / Loss (%)132.46132.34
5 Year Profit / Loss (%)134.67134.56
Beta (1 year)1.271.28
Avg. Daily Volatility (% on year basis)1.711.72

Key Market Indicators

Market Cap (₹ Cr)7,48,361
Book Value (₹)611.34
P/E22.80
Industry P/E7.95
P/B2.27
Dividend Yield (%)0.43
Return on Equity (%)
12.29

Note: All the above values as on 29/07/2019

3. Wipro Ltd.

Wipro Ltd. is an Indian multinational company headquartered in Bengaluru, Karnataka and provides information technology (IT), consulting and business process services.

The company was incorporated on 29 December 1945 in Amalner, Maharashtra by late Mohamed Premji under the name “Western India Vegetable Products Limited”, which later abbreviated to “Wipro”.

Wipro Ltd’s key revenue segments include software services which contributes6 96.31% of total sales and other services like networking, storage equipment, servers, and software licenses contributed 3.68% of total sales for the year ending March 2018.

Performance of the Stock

ParametersBSENSE
Current Price (₹)264.40264.55
1 Year Profit / Loss (%)27.8127.87
3 Year Profit / Loss (%)28.6228.65
5 Year Profit / Loss (%)27.0327.06
Beta (1 year)0.450.43
Avg. Daily Volatility (% on year basis)1.451.48

Key Market Indicators

Market Cap (₹ Cr)1,79,830
Book Value (₹)93.71
P/E19.97
Industry P/E
31.93
P/B3.18
Dividend Yield (%)0.34
Return on Equity (%)
15.95

Note: All the above values as on 29/07/2019

The Bottom Line

A truly diversified portfolio has all three, income, value and growth stocks.

If you find only one kind in your holdings, consider the benefits of diversification. If you are just starting out, plan your investments with a good mix of income, value and growth stocks.

Happy Investing!

Disclaimer: The views expressed in this post are that of the author and not those of Groww