Best Stocks To Buy For Long Term Investment
Best Stocks To Buy For Long Term Investment
Apr 13, 2018 | 17:21 PM IST
Apr 13, 2018 | 17:21 PM IST
Note - We have updated this Long Term Investment article to suit the current market situation.
The last couple of months have given sleepless nights to the investors. Sensex and Nifty have been on a downward trend since the Budget 2018 was announced in February this year. Before this correction came, the markets were scaling new heights every week. At the time when the market was booming all the investors were happy but as soon as the market dropped the same investors went on a selling spree. This is exactly what you don't have to do when you are investing with a long term investment perspective. The long term view simply means to stay invested through the thick and thin of the market cycles. Besides, a market correction is not the time to sell but it's the time to buy. A smart investor would only be happy if the markets are falling as it brings all the inflated prices of the stocks in the perfect buying range.
Without beating around the bush, let's take the question head on--What are the best Long Term Investment stocks to buy in India?
Instead of just listing out the stocks for Long-Term Investment, we will try to take an analytical look at the stock and the corresponding sector which will give us an insight of why the growth is expected and how long will this growth last. It's the best way to build long term stock investment strategies.
A Review Of Sectors In Focus 2017
Every year there are certain sectors which play a key role in moving the market. In the year 2017, we saw sectors like Chemical & Fertiliser and Steel taking the lead. The major stocks in these sectors like JSW Steel, Tata Steel, Chambal Fertiliser, GNFC, etc. were some of the best performing midcap stocks of 2017. In the same way, there are going to be stocks which will do well in 2018.
We at Niveza, however, don't go by the yearly stock trends but like to pick stocks which can be held with a Long Term Investment view. In keeping with this theory, if you look at last year's stocks recommendations from steel and chemical & fertiliser sector you would realise that these stocks have not yet run out of steam. After the budget 2018 correction, some of these stocks were available at attractive prices.
Similarly, for 2018, we have to give you stocks ideas which not ride the current trend but keep marching ahead even after the trend dies down.
How To Find Stocks That Outlive The Market Trend?
Avoid Herd Mentality
What is a trend? A trend is nothing but a thing which is done/performed/emulated by a large number of people at the same time. When a certain style makes a noticeable presence, it is called a trend of the season. In the same way, there are stock market trends. In stocks, a certain sector attracts huge buyers which eventually makes the sector a trending sector and its stocks, trending stocks.
The underlying element of a stock trend is herd mentality. This is what makes a "stock market trend" a dangerous phenomenon. In a herd mentality, people buy a certain stock simply because someone else is buying it. In such scenarios, people don't engage in any analysis of the stock. Following a stock, the trend is akin to driving a car blindfolded. It's bound to be a disaster.
Sector In Focus - Automobile & Auto Ancillaries
The Indian automobile industry is worlds 4th largest automobile industry. In the commercial vehicle manufacturing segment, the country ranks seventh. The facts and figures suggest that Indian auto and auto ancillaries manufacturing has witnessed a steep rise in the last couple of decades.
The Growth Factors Of Automobile & Auto Ancillaries
The growth of Indian auto industry (including auto ancillaries sector) is expected to reach Rs 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026. Indian auto sector is dominated by two-wheelers which occupy 79% share in the entire automobile production in FY17.
Following close at heels were sales of cars, utility vehicles and vans which saw 8.85% growth in the calendar year 2017. Furthermore, Indian automobile exports grew to 15.81% on the year-on-year basis in April-February 2017-18. In the period between April 2000 and December, 2017 Indian auto industry received a massive infusion of Foreign Direct Investments (FDI) worth US$ 18.41 billion. During FY2016-17, the domestic sales of passenger vehicle crossed the 3 million unit mark. That's not all, it is expected to increase further to 10 million units by FY20.
Government Initiatives Helping The Sector
The government's vision to make India a global auto manufacturing and research and development (R&D) hub will give a big boost to the sector.
To back its ambitious plan, the government has set up bodies like National Automotive Testing and R&D Infrastructure Project (NATRiP) centres and National Automotive Board to smoothen the interaction between the government and the key industry players. To add to that, to give a push to the electric vehicles, the government has set an aggressive target of making India a country where only electric vehicles will be sold.
CNG distribution network in India is expected to reach up to 250 cities in 2018. In 2014, 125 cities were covered. There is also a growing market for the luxury car. By 2020, the market is expected to reach 150,000 units.
Trivia - One of the interesting fact that emerges from the auto sales numbers is that the number of cars Maruti Suzuki sold in 1993 is that same that it sold in March 2018. In a single month.
Stocks To Watch In Automobile - Tata Motors & Gabriel India
Sector In Focus - Infrastructure
Infrastructure is a wide sector and comprises of many other sub-sectors. Infra sector can be categorised into three sub-segments - 1. Civil Construction 2. Logistic & 3. Electronic Infrastructure.
Similarly, infra sector has a correlation with many sectors like steel, cement, semiconductor, etc. Due to this correlation, whenever there is a surge in the infra sector, the same enthusiasm is seen in the corresponding sectors.
Civil Construction - Government is emphasizing more on the civil development of the country by ordering projects on multiple fronts ie. roads, bridges, hydrocarbon, irrigation, railway projects, airports etc.
Ministry of Road Transport & Highways is expected to cover 50,000 km of national highway network by FY19 which is a key driver of the sector.
Rural connectivity, smart city projects will fuel the growth of the sector for a considerably long period of time.
Strong execution and order inflow from National Highway Authority of India (NHAI) of Engineering, Procurement, and Construction (EPC) & Build Operate Transfer (BOT) projects will give a massive boost to companies like IRB Infra, KNR construction. NHAI has ordered projects worth 7400 km in FY18 alone and the forthcoming projects will boost the order inflow of road companies.
Hydrocarbon, water, airport development projects will accelerate the growth of companies like L&T, GMR.
Logistic - Major Ports have reported overall 5% volume growth in FY18. It is expected to drive container growth of ~15%. Based on Indian Railways data EXIM QoQ volume growth is expected to be 5%. These facts support the growth of companies like Concor.
Electronic Infrastructure - With strong civil construction order inflow, power generation and transmission sector are also slowly but steadily moving ahead. Resolution of stuck and delayed orders and improved execution & operating expenses will drive the growth of power companies like BHEL, Power Grid, ABB.
Stocks To Watch In Infrastructure - Power Grid & KNR construction
Sector In Focus - Consumer Products
Consumer Products is also known as Fast Moving Consumer Goods (FMCG). FMCG sector is considered to be one of the most stable and reliable sectors in equity. For decades, FMCG companies like Hindustan Unilever, ITC, Nestle have brought a lot of wealth to the investors in the form of stock value and regular dividends.
So what more the sector has to offer?
After GST changes and demonetisation, consumer durable sector is on a stable note.
The constantly improving rural demand, growing purchasing power and influence of social media will drive the growth of the industry.
Cost saving initiatives, operating leverage, GST lead tailwinds (indirect savings) will boost margins of the companies.
Stocks To Watch In Consumer Products - ITC, Hindustan Unilever, Marico & Britannia.
Sectors In Focus 2017
The market moves because there is a lot of movement in certain sectors. All the time, there are some sectors which perform better than others. In the recent past, there have been two sectors which particularly stand out due to their exemplary performance. These sectors are - Chemicals & Fertilisers and Steel. If we have to make a list of 10 best long-term stocks, most of the stocks would be from these sectors. Upon analysing these sectors we will get to know the growth factors and also the growth potential of the stocks in the sector. Its better to analyse stocks instead of looking for readymade stock recommendations for long-term.
Chemicals & Fertilisers - At this point, there are various reasons why Chemicals & Fertilisers sector is doing well. First and foremost reason is that the monsoon is good and the demand for fertilisers in on the higher side. However, the good monsoon will only support the sectors for a quarter or two, but what makes this sector good for long-term investment plan? True, as a smart investor you shouldn't make the buying selling decisions based on seasonal triggers.
The good news is that along with good monsoon, the sector is also getting plenty of help from the government. The government of India recently announced its fertiliser policy. In this policy, it has made it clear that it will extend all the support to the domestic producers. It will also provide financial support to some defunct companies to get them back on feet. The government is planning to restart some of the idle plants owned by The Fertilizers Corp. of India and Hindustan Fertiliser Corp. The government's intervention always works in the favour of the sector.
The reason government is so aggressively venturing into Chemicals sector is that it wants to become self-sufficient in the production of chemicals. On the global front, the demand for nitrogen fertilisers is expected to rise up to 5.6% to 119.4 million tonnes in 4 years. The government is looking at this rising demand as a window of opportunity and empowering domestic players to ramp up the production. This clearly indicates government's long-term vision and subsequently, it will benefit the chemical companies and the investors. So it will be safe to say that we can find best midcap stocks for long-term investment in this sector.
Stocks To Watch In Chemical & Fertiliser Sector - The performance of Chambal Fertilisers, Gujarat Narmada Valley Fertilizers & Chemicals Limited (GNFC) has been quite good.
Chambal Fertilisers (sector: Chemical & Fertilise) is Potential Buy (10 Step Process To Confirm If It's A Buy)
Steel -- is not as popular a sector as banking, Information Technology (IT) and Pharma. It's not that it hasn't given returns to the investors, it has, however, it was going through a lean phase for quite a while. But in the stock market, every sector stages a comeback some time or other, and it seems, the steel sector is on the verge of making a grand comeback. The events of the last couple of quarters combined with government's policies have brought good days for the steel stocks. If the buzz is anything to go by, then it seems that steel stocks hold quite a promise for the investors in the near and long-term future.
Let's shed some light on why we think steel would be a good sector in the future and we will also try to find the steel stocks which promise good returns.
Why Steel Stocks Will Surge?
The most prominent reason that works in the favour of steel sector is--government's focus on infrastructure development. Infra development consists of building highways, flyovers, subways, etc. Steel being the essential element of infra development, it is only natural that its demand will go up. On top of that, the government in its steel policy of 2017 focuses on giving prominence to domestic steel producers. If you add these opportune developments, it gives a clear hint that steel sector is about to take off. Also, schemes like Pradhan Mantri Awas Yojana, which provides subsidies to citizens of certain income level and "Smart Cities" plan which emphases on upgrading and developing civic amenities and urban infrastructure, will give a decisive push to steel sector.
How To Choose Stocks For The Long Run?
Every stock in its lifespan goes through several ups and downs. In between, there are so many things which propel its movement e.g. quarterly results, a sudden slump or rise in a certain sector, change in the management, etc. When you buy stocks with the long-term perspective, you have to take into account all these roadblocks and also the fundamentals of the company which have to be solid enough to sustain the bumps of the stock market.
In short, finding long term shares is a Herculean task. One needs to have thorough understanding of the equity market and good analytical skills. It can't be accomplished by merely looking up long term stock picks in India. Hence, if you want to invest in stocks but don't have time to research, it's a good idea to subscribe to a stock advisory firm.
Benefits Of long term Investment
If you are an investor, you must have heard a lot about long-term investment while chalking out your investment plan. It's safe and secure and saves you the trouble of day-to-day market hassles, things like that? It's all true, but there are also few untold yet important benefits of going long which you might not have heard before.
1. Beat The Market Volatility
As we discussed above, volatility is just another name of stock investment. Short-term investors, intraday traders are amongst the people who live on curves of the market graphs. However, long-term investors have an edge in this regard. As they invest in the long-term stocks which have long-term potential, they automatically discount the short-term hiccups which every stock goes through in its life cycle. On the other hand, there are some stocks which look very volatile in the short-term, but give excellent returns in long term. Hence, it will be safe to say that long-term perspective steers you clear of all the roadblocks of short-term investment.
Let alone the 'risk' factor, here's an example to illustrate how short-term perspective can backfire. Imagine you have a capital of Rs. 1 Lakh and you invest it in stocks. Six months down the line you get around 25% upside on your invested capital taking the value of your capital to 1 lakh 25 thousand. Getting 25% profit in 6 months is a good deal, I wouldn't blame you if you take that deal. Most of the investors would do the same. But considering the fact that you have bought good stocks, booking profits early may not be a smart thing to do. Those stocks go-ahead to become multibaggers and you miss out on 2 things - more profit and regular dividends.
2. Equity Is No Longer A Tax-Free Vehicle, But Still Better Than Others
The Union Budget 2018 brought a sad news of the departure of long-term capital gains. Going forward, all the gains in equity above Rs.1 Lakh will invite tax of 10%. For example, if you have invested Rs.5 Lakh and have earned a profit of Rs.1.5 lakh, in this scenario, Rs.50,000 would be taxed at 10%. Before this law came into existence, the returns on the stocks which were held for more than 1 year were absolutely tax-free. This tax exemption was given by the government to encourage people to invest in equity and equity-linked instruments. After this development, the equity gains will take a little hit, but despite added tax burden, the sheen of equity investment is still intact. It still remains the only investment medium which has the potential to give uncapped returns. The well-planned investment in stocks has better chances of fetching handsome returns than any other investment medium.
3. Long Term Investors Save A Lot On Brokerage
There are few investors who give a serious thought to equity brokerage they pay. They think it's a nominal amount that brokers deduct before delivering the stocks. Brokerage in India is extremely high, to add to it, there are plenty of taxes and cesses which are levied on every trade (buy & sell). Naturally, short-term investors and day traders have to pay more brokerage as they are constantly engaged in the buying-selling process. On the other hand, those who go long, and refrain from constant buying and selling of stocks, save a lot on brokerage, cess and taxes.
4. Experience The Power Of Compounding
In simple terms, compound interest means the interest you get on the interest. So how is it relevant to stock investment? If you are investing on a long-term basis, you will get dividends on your stock holdings. The dividend is a kind of a bonus you get on your stocks. We are assuming here that you have invested in stocks which have decent dividend yield rate. So as the dividend is a bonus income, you get an opportunity to roll it over into other promising stocks which will bring you more income. In a way, you are earning income from the income which is a form of compounding. So you are experiencing the power of compounding. Isn't that a great deal?
It is true that you can apply the same theory to your short-term investment. Where you buy one stock and sell it once it reaches target then invest the same capital (along with profits) in new stock. Yes, that is also a version of compounding. But here's how the long term has an edge over short-term. In long-term investment, you get the dividend which is a bonus income. Hence, you don't have to sell your principal investment. Unlike short-term where you get the profit at expense of selling good stock, in long-term, you get to eat your cake and you can have it too.
5. Give Those Sleepless Nights A Miss
We started this article with the events of the day of a day trader. As perfect pay off, we should also give a rundown of the events of the long-term investor. Certainly, it will not be as eventful as the day trader's but they enjoy the biggest gift the life has to offer - peace and a sense of satisfaction. Ironically, the objective of the short-term, long-term and intraday investors is one and the same--wealth creation. But should we be obsessed with money? Is it worth putting your hard-earned money on the line, and living in perpetual anxiety while the market goes through its quintessential ups and downs? Certainly not!
The best part of being a long-term investor is that you get a peaceful sleep in the night. Unlike day traders, who constantly live in the anxiety of buying and selling, long-termers just park their money in good stocks and devote their time to pursuing good things in life. The immediate success of day traders may look tantalising, but it comes at an expense of heavy risk bearing and emotional upheaval. Is it worth losing your sleep for some petty gains? Not at all. Go long, dear investors!
6. Long term Investment Is Like A Marriage
A marriage, a relationship between husband and wife, is a perfect analogy for a long-term investing. First and foremost, like in marriage in long-term investment, you think long and you are convinced about the prospects of your partner. Like in marriage, in long-term investment, there are ups and downs, moments of happiness and sadness. And lastly, the profound facet of both these institutions is a happy life. Like a successful marriage, a successful long-term investment plays a crucial role in providing you with a happy and satisfied life.
Niveza Editorial Desk :
We are a team of stock market nerds trying to stay ahead of the herd. We spend our grey cells everyday to a pave a smooth road for our clients in the shaky world of stock market. While tracking the mood swings of the market we bring our clients the most rewarding deals.
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