Best Stocks in India: how to find 10 best shares to buy for long term?

[Updated: 08-May-2021] Buying shares of exceptional companies does not ensure that one has bought the best stocks. But people get confused between the two. Being a share of companies like RIL, TCS, HDFC Bank, Apple, Microsoft, does not guarantee that they are great stocks.

What can make a stock best for its investors? It will be a combination of the quality of business and the price valuation of its stocks.

Indeed, investors cannot buy shares of any company. Understanding a company is essential to judge its strengths. Why? Because one must buy shares of only strong companies. 

But after we have identified a strong company, its stocks cannot be bought straight away. We must check further its price valuations.

List of best stocks in India

(Updated: 08-May-2021)

SLNamePrice (Rs.)M.Cap (Rs.Cr.)PAT (Rs.Cr.)ROE-3Y (%)GMR Score
1Bharat Rasayan11,642.604,989.72153.4734.4584.32
2Dolat Investments66.61,158.96105.3338.1278.08
3Associated Alcohols &418.2753.9953.6224.7474.59
4Valiant organics1,531.804,208.79053.9774.53
5Ester Industries144.751,242.57145.113.2873.16
6Polyplex Corporation1,089.803,488.64678.5716.970.83
7Mangalam Organics720.4591.864.7946.2370.26
8Maithan Alloys7912,317.86230.0328.1470.21
9Alkyl Amines Chemi8,148.0516,634.60251.9529.8968.05
10Navin Fluorine Intern3,373.0016,768.82443.9222.2968.02

Awareness For Price Valuations

Price valuation is a method to estimate a fair price for shares of companies. What is a fair price? It is a justified price of a stock that makes it a valuable purchase. Considering the strengths and weakness of a business, a stock trading at (or below) its fair price tends to move up. 

Pro investors are always looking for exceptional companies whose stocks are trading at price below their fair price. A more niche name for ‘fair price’ is intrinsic value.

Being aware of the concept of price valuation prevents people from falling into the value trap. Novice stock investors often fall for famous names. How? First, a known name does not always mean that the company is strong.

Second, shares of famous/strong companies often trade at overvalued price levels. By sticking to the concept of buying stocks below their fair price can negate both the risks.

Let me give you an example.

Castrol India is one of the blue-chip companies we know about. The reason why the company has earned the tag is reflected in its financials. See these numbers:

Best Stocks - Castrol India - Profitability

Even the best of stocks will find it hard to match the profitability numbers shown by Castrol India. In the last five years, the minimum reported ROE was 41.21%. Similarly, the minimum RoCE was 54.56%, and the minimum ROA was 24.35%. These are par excellent numbers. 

But allow me to show you another metric of Castrol India, its last 10-Yr price history. 

Best Stocks - Castrol India - Price Chart

In Yr-2009, the share price of Castrol was Rs.42. By Yr-2015 it rose to Rs.250 levels. But since then, the price is only tumbling down. As of date, its price is at Rs.125 levels. People who had bought the shares in Yr-2015 might be at loss.

In hindsight, seeing this chart hints at the stock price being overvalued in Yr-2015. People who did the price valuation analysis in 2015, must have stayed away from the stock. 

This is an apt example of an exceptional company, not able to yield positive long-term returns for its shareholders due to expensive valuations.

Checking the price valuation of stock before a purchase is a non-negotiable requirement. [Check this excel sheet which can do intrinsic value estimation]

How to Identify Exceptional Companies

There are two stages to do this exercise. It starts with observing a company. Before one can go ahead and start reading and analyzing the financial reports, this is a must. What to observe? Seeing a company from a layman’s perspective to know its business goals, performance, competitors, etc can give insight. 

Once a company looks good upon observation, further digging is required. What details to look for? Here are the four main parameters:

  1. Profit & Profitability: Nobody wants to invest in a loss-making company, hence profit is an important metric for investors to judge a company. But profitability is even more important. Ratios like ROE, RoCE, ROA, etc can highlight a company’s profitability.  Read more.
  2. Future Growth: Guessing future growth numbers can be based on past trends. Looking at sales, profits, EPS, dividend, net worth, etc can give a reasonable idea. A profitable business that is also growing fast can be a good bet. Read more.
  3. Management: The quality of managers who run the business contributes to its strengths. Ethics, qualification, and aptitude of the top managers play role in the long-term performance of a company.  
  4. Competitive Advantage: Suppose I’m competing in a sector where companies deliver ‘operating system’ for laptops and desktops. Here my competitors will be Microsoft (Windows) and Apple (macOS). What are my chances of success? Very low, right? Before the two, my competitive advantage (MOAT) is like zero. Read more about MOAT.

A profitable and growing company, run by great managers, having a wide MOAT are ingredients for an exceptional company. 

But it is also true that a top score in these four parameters cannot make the best stocks. Why? Because if the shares are expensive, buying them at those price levels will be a mistake. It will never reap the desired returns

Best Stocks and Enterprise Value

Now we know about two things, the concept of intrinsic value and exceptional companies. Together, they make a stock great. In this section, we will take further the concept of intrinsic value. 

Suppose we’ve calculated the intrinsic value of Castrol India as Rs.90 per share (just for example). As of today, each share of Castrol India is trading at Rs.125 per share. This immediately tells us that Castrol’s share is overpriced. 

What we are doing here is comparing the current price with intrinsic value to draw the conclusion about the valuation of Castrol’s share price. 

But there is a better alternative than “market price”. Experts prefer it for comparison with intrinsic value. What is the alternative? It is called “enterprise value per share”.  To know more about enterprise value, please check the link. But we will briefly delve into it in this article as well. 

There is a strong link between the current price of stocks and enterprise value per share. For many stocks, both values are almost similar. 

Best Stocks - Concept of Enterprise Value

What is Market Price? We can also see market price as Market Cap per share. So what experts say that, instead of comparing price (market cap per share) with intrinsic value, use ‘enterprise value per share.’

What is enterprise value? It is equal to Market Cap + (Debt – Cash)

We can also visualize “enterprise value” as a “refined market cap”. It is a better metric than the ‘market cap’ to represent the market value of a company. Hence if we have to compare the estimated intrinsic value, we must use “enterprise value per share” instead of ‘current price’. 

Example

Castrol India has about 98.91 crore number shares in the market. Let’s assume the current price of its shares is Rs.125. Hence its market cap will be Rs.12,363 crores. 

The company is debt-free (total debt = zero crores). The company has Rs.946 crores as “cash and cash equivalent’.  Now, using these numbers we can calculate the enterprise value. 

Enterprise Value = Market Cap + (Debt – Cash) = 12,363 + (0-946) = Rs.11,417 Crore.

Enterprise Value Per Share = 11,417 / 98.91 = Rs.115 Crore. 

Now let’s see the comparison graphically. The company looks less overvalued by comparing the intrinsic value with ‘enterprise value per share.’

Compare market cap, enterprise value, intrinsic value2

[Note: Generally speaking, a debt-free company is valued better than a company deep in debt]

What Gives Value To Stocks?

How often we end up buying shares without knowing much about its underlying company? It happens with most people. Buying stocks like this is like treating stocks as nothing more than a Ticker. For such people, shares are just numbers that go up-and-down the whole day. 

But consider this example. Each Share of MRF is priced at Rs.84,000, whereas Ashok Leyland’s share is priced at Rs.115. Why there is a difference? The root of this difference lies in the business fundamentals. What are those fundamentals? 

Generally, a very deep analysis is required to unearth the strengths and weaknesses of a company. Such an analysis is called fundamental analysis. But in this article, we will not go into those details. We will take a quick route to understand which business parameters build value for its stocks.

What Gives Value To Stocks

Generally speaking, every step of a business contributes in its own way to build the intrinsic value of its stocks. But in this article, we will limit our focus to the most important ones. Any company builds value for itself in two ways:

  • Current & Past Fundamentals: The company’s current position can have a lot of say in its intrinsic value. The current size of net worth, debt, assets, net profit, dividend, and free cash flow are few important metrics. The past also has its say. The speed at which the company grew in the past-years is a crucial factor. 
  • Future Prospects: A company that is perceived as a fast-growing business will have a high value even if its current and past numbers are not so strong. The three most important parameters that build value are future profits, free cash flow, and rate of their growth. 

The majority of companies build their value from contributions from each of the above two factors. But there are exceptions to this rule. Very large bluechip companies derive their value more from their current and past fundamentals. Whereas, startups get their value more from their future potential. 

How to estimate the value of a business?

There are two ways to estimate the value of a business. The first way is through the use of financial ratios. In this analysis, people use ratios like P/E, P/B, PEG, etc to value a business. The ratio of a company is compared with other companies of the same sector. This is a rather simplified but superficial way of estimating the price valuation of stocks. 

The second way is a more detailed approach. A company’s intrinsic value is calculated using valuation models like DCF, NCAVPS, Absolute PE, Residual Income Method, etc. Comparing the calculated intrinsic value with the ‘current market value’ (discussed above – enterprise value), gives a more certain conclusion. 

My stock analysis worksheet provides both financial ratios and intrinsic value estimation for its stocks. 

Conclusion

Identification of exceptional companies is only the first step towards learning the names of the best stocks of the market. The second step is to do the price valuation analysis. Buying stocks of even great business at overvalued price levels will only lead to losses.

A exceptionally good business available at overvalued price levels cannot qualify as a good investment. But stocks of an average business available at bargain price will be a better investment alternative.

Have a happy investing.

Next >> Economic Moat in Business



nv-author-image

Hi. I’m Mani, I’m an Engineering graduate who in pursuit of financial independence, has converted into a full time blogger. After working in the corporate world for almost 16+ years, I bid it adieu....read more

100 thoughts on “Best Stocks in India: how to find 10 best shares to buy for long term?”

  1. Hey I bought shares of United Drilling at. 244 after your suggestion …. Its 354 now!! Should i sell or hold?? Plz suggest target price

    Thanks in advance…. You rock!

  2. Dear sir
    Really this good information to public.
    But I don’t know how to purchase small quantity share for earning long term. I was loosen lot ,so encourage us.

    1. NAGESWARA RAO GANDIKOTA

      Invest in the ratio of 14% – 28% – 56% – Buy only when there is a minimum correction of 3% in high premium stocks and 5-10% correction in top class mid and small cap stocks
      You will make 20% yoy

  3. Hi Mani, always great to read your blogs. You shortlist a lot of paper industry companies but none of them seem to have a great forward looking price, is degrowth or stagnant nature of industry driving it?

  4. I am pleasingly baffled to see that 8/10 of the stocks have shot up since you posted this on 1st August 2020. I didn’t go through the process as I wanted to ensure if its analysis actually works. Apologies for saying it, but I am almost convinced that it does! Will spend this weekend understanding the article. Thanks a lot Mani!

    Regards,
    Ganesh

  5. You are such a wonderful person thanks for the info so useful May God bless you always.
    All these details of yours will help someone to become financially stable very nice

  6. Dear sir,
    I am new to the investment in the market and i would like to invest with a long term goal can you please advise.

  7. Hello Sir,
    Such an informative blog. I even followed you on Youtube and Now I am hooked in value investing.
    A question regarding this blog post is How did you identified these stocks from a long list of stocks available?

    thanks,
    Atul

  8. When i calculate the intrinsic value for Hindustan Zinc, it is way lower than the Market Price. Can you help me know what was your IV for Hind Zinc please?

  9. Hello Sir,
    I have been reading your blogs for a long time, thank you so much for sharing valuable information. Personally I like Dabur India, Infosys, Divi’s Labs, Pidilite Ind, Marico, TCS these stocks you have mentioned in the list, thank you very much

    1. Where can i get the breakup for the cash flows of the company? Like the cash flow from investing & financing activities? I could only get the totals without the breakup. Could you please help.

      1. Kushagra Raghav

        Respective companies Annual Reports, which are uploaded on the companies’ website usually under investor Relations head.

  10. Hi sir, first of I want to thank you for creating such a useful content source to achieve financial freedom. I really enjoyed reading your blog.

    this is really helpful.

    sir, I am holding IRCTC shares @1150. What do you suggest to do with it I should hold or sell.

    will it fall further?

  11. Prasanna Arumugam

    It’s indeed a great information, Thanks for sharing such a detailed data to us. I was facing little challenge going through all the parameters in the company’s report, as a couple of parameters are named differently in an annual report than what you have mentioned here. I would love to buy your product but before that I would like to go over on my own to see how it works. Is there any email where I can reach you out for questions? Please email me your contacts to reach you out.

  12. Hi Mani,

    Thanks for sharing valuable expedition.

    Am new to share market. I started investing in Adani Greens, RVNL, REC and Ashok Leyland. Shall I continue ?

    Moreover what are the stocks which can grow after this pandemic Covid 19 effect?

    1. Manoj Kumar Mishra

      Hello
      I want to buy some share but I am new I don’t know about can you please help me with that like which share I can buy right now.

  13. hi,
    Can I know your feedback about the stock “Honeywell Automation Ltd.”
    BSE: 517174 | NSE: HONAUT | SERIES: EQ | ISIN: INE671A01010 | SECTOR: TELECOMMUNICATIONS – EQUIPMENT

    Advance Thanks…

  14. Hi Mani,

    I’ve your V 2.1.5.02 analysis worksheet. Does it have DCF as your version log says this update is done and released as 2.1.5.04.

    Also, nowadays Moneycontrol website has been updated and it is not displaying total number of shares in shareholding pattern. Is there any other source where we can get exact number of total shares.

    Have a great day ahead.

  15. Vishal Varadarajan

    Lovely article. It gives great insight into Intrinsic value of a stock.
    I calculated IV using the following method:
    > I tried calculating Avg. g using the annual report of Britannia Industries from 2015-19.
    > FCFE of each year varies drastically and leading to g to bounce from -ve to 300% change.
    It gives a varied picture of Intrinsic value of that company. What is the range within which IV of a company can vary? Are there any examples of sky high IV?
    Thanks in advance. I would love to learn more.

  16. Mr.Mani,

    i have planned to put in stocks with an amount Rs.50,000 .if u dont mind can u tell which are the stocks to buy .will wait for 8 years .using this as investment

    1. Hi Mani,
      I too have same question.
      Looking to invest 50k to 1L in market for first time.
      Please suggest…the possible sectors & stocks.

      1. Just go for large cap MF units or niftybees if you dont know much about stocks…

  17. Hi Mani,
    I have been following your articles for more than a year. Recently I purchased STOCK ANALYSIS WORKSHEET V2.1.4 (PLUS). First congratulations on good work.
    I have couple of questions for you though as listed below:
    1. This article list L&T Finance as undervalued at 80.6 however when I entered data as advised in the video, I am getting intrinsic value as 53 and showing it as overvalued. Can you please advise?
    2. I have been holding Lupin shares for last 20 years. Purchased price is quite low. When I used the spreadsheet to get intrinsic value of Lupin it is showing approx. 919. Can you please confirm this price is correct and do you advise to keep it?

    1. Hi, the numbers shown in this article are based on a screener. These numbers are not as reliable. But they at least screen out the non-important stocks. I generally use my “Stock Analysis Worksheet” to do a more deeper analysis of my shortlisted stocks.

  18. Basis the above my FCFE for Graphite India is coming out to be 1308 CR (using Annual report of FY18-19). However, in your post on best stocks (https://getmoneyrich.com/stocks-list/best-stocks/), you show Graphite India’s FCF as 2194.71. Not sure if it is because my inputs to different variables is incorrect. Would be super helpful if you can take a company’s example (for a specific FY) and show this.
    Also in new debt formula you mention “Note the numbers for ‘purchase and sale of capital assets’. Note the numbers mentioned against ‘Proceeds from borrowing’.”. Shouldn’t it just be proceeds from borrowing as purchase and sale of capital assets would be under investment activities

  19. I am novice on this, can you please explain how is expected return arrived at & also the data table in that section. Thanks

  20. Hi Mani,
    Really nice article. it’s great that you are sharing your watch list for others.
    I would also like to suggest one website ( you might be already knowing about it ) to pick up stocks for analysis. Website: screener. in/screens/ .
    On these screens one can write down query and get list of stocks based on our preferred criteria. Then they can use your stock analysis tool to get intrinsic value.
    Let me know your views on it. Thanks

  21. Hi to All, iam new to this feild .. if anyone can suggest few names to study and select shares to invest.. it will be helpfull ..

    1. there is nothing like help but more like pay and payee, if you have something to share then they will might share something to you. but it rarely the correct path.

      Look before you go and do it!
      —————————–
      nothing is free just like this blog!
      ————————————

  22. Could you elaborate on “Cash flow from financing Activity” esp. what all to consider under Proceeds from borrowings ‘E’ and repayment of borrowing ‘F’?
    I was calculating FCFE for Ashok Leyland and their “STATEMENT OF CASH FLOWS” has below

    Cash flow from financing activities
    Proceeds from issue of equity shares (including securities premium) 455.35
    Proceeds from non-current borrowings –
    Repayments of non-current borrowings (105,502.74)
    Payments relating to swap contracts on non-current borowings (11,633.48)
    Proceeds from current borrowings 924,000.00
    Repayments of current borrowings (933,863.78)

    Should i calculate like below:
    E Proceeds from borrowing (New Debt) From Report 924000
    F Repayment of borrowing (Debt Repaid) From Report -933863

    Thanks in advance! This article made me start looking into the sheets.

    1. Good work Ankit. Your assumptions are right related to “cash flow from financing activity”. Thanks for asking and putting your thoughts here.

  23. Hello sir,
    I was looking for some information on Best stocks to buy in India, this morning and came across your website.

    Great content! I especially liked how your website describes the topic in an easily understandable language which inspired me to write more up to date content on How to pick the best stocks for consistent returns and Top 10 best stocks to buy in India for the long term.

    Actually, I have published on the said topic with more insights and infographic which is quite beneficial for your audience.

    Let me know if you want to check it out.

    Either way, keep up the good work.

    Thanks,

    Jharna Majee.

  24. Sir, i checked the financial data for britania, but could not find the figures you mentioned above. have you used random numbers? when i did the calculation, the IV/share is less than Re 1. can you take a real example and explain the calculations. for our benefit, can you use financial figures from ndtv or economic times.
    thank you.

    1. I will suggest you to use moneycontrol. Generally numbers in financial reports will be similar whether we follow NDTV, economic times, etc. Thanks.

  25. This is a very good article, which gives a brilliant explanation on how to identify and select the best stock for investing. It also tells us how to identify the best stocks for beginners, as stock picking must be done with extreme care because picking up any random share without proper research will be a bad investment decision. This article also tells us that business whose future free cash flow is certain is a good business and market value of the stock must be less than its intrinsic value. Here the information provided is precise, resourceful and has its unique way of analyzing data and presenting it in a simple manner.

  26. With ref. to your post dt. 19th Sep. 2018 on Free Cash Flow Analysis of Indian Stock, AdanI ports is Undervalued. But your post dt. 24th Sep. 2018 on Best stocks to buy in India for Long term 2018, you have mentioned to avoid Adani Ports. Please clarify.

    1. –Good observation…
      The list provided in this blog post is result of a general “screener”. It is less detailed. But it helps me to quickly highlight few potential stocks from all.

      The analysis provided in “Free Cash Flow Analysis of Indian Stock…” is more detailed. It is based on 2 years data. Hence the reliability of that analysis is more.

      The point is, estimation of intrinsic value will differ from person to person. The variation will come based on:
      – Knowledge, skill of the analyst.
      – Data used for analysis.
      – Procedures used for analysis.

  27. Out of NIFTY 50 only 8 shares qualify your test. Now looking tersely, it can be said that though the intrinsic value is high these shares do not command good price.My be due to the bad methods in manufacturing, marketing, political reasons, lack of financial manipulation, risk taking etc.That means one should not buy those shares before the companies improve. When and how will that happen? They may not even reach the IV in long time like Karnatak Bank. There appears contradiction. Do you see the light?

    1. Market pice can be higher than IV. Its fair.

      But why IV is less than price? It is not always “due to the bad methods in manufacturing, marketing, political reasons, lack of financial manipulation, risk taking etc“….

      Stocks of great companies trade at overvalued price levels. But there will be moments in time when there will be price correction. The strategy should be, first know the true value of a good company. When this is established, wait for the market price to become favourable (it will be, one day soon).

  28. Your method seemed to be working in good old days before the IPO of Reliance Power and also when the shares of multinational were issued at nominal premium and when STT was not there.
    Who approves the shares prices of IPO and on what basis? Could that be rigged up? Why people invest without knowing anything.
    One of my Sr. broker who is no more, used to say that share bazar is a gambling den. That is an over statement but if everything is predictable, then you can never earn in share bazar because here they do not produce any goods or services and also they can not tax like Govt.
    Having said that, your method is quite interesting because it enables to find the element of speculation quantum in present share prices.
    Is there a software program sold by you which I can buy and on the top of that I apply my intuition?
    Congrets fr nice style and kind regards

    1. Share Market looks like a casino, but its not. At least for me, “shares” are not very different from the “business” it represents. This way of looking at stock market, helps in making more meaning out of stock investing.
      Thanks for a lovely comment.

  29. while calculating IV per share, i noticed that the nifty 50 stocks you gave also divide no . of shares by face value. Without this every stock seems overvalued… Mani please comment

  30. I tried to follow your steps to calculate FCFE. However, I am getting minor difference in the FCFE of nifty-50 stocks that you have mentioned. For ex, following are the values I took from Bajaj auto’s annual report 2017-18 (everything is in Rs. Cr). PAT = 4068.1, Depreciation & Amortization = 314.8, Purchase of capital assets = 182.63, Sale of capital assets = 13.13.
    Current asset, 2018 = 9,235.63 and current asset 2017 = 9,391.37 hence change in current asset = -155.74. Similarly, current liability 2018 = 4,111.29, current liability 2017 = 3,212.58 hence change in current liabiliity = 898.71.
    Proceeds from borrowing (new debt, I am assuming this is long term debt only that we should take) = 0
    Repayment of borrowing (again repayment of long term debt) = 0
    FCFE I calculated = 5267.85. FCFE you have mentioned in the table above = 5154.26
    I believe either I am going wrong in taking the captial asset sale/purchase or new debt vs repayment. Would be super helpful if you could help me with the same.

    1. The value mentioned in the blog are results out of a general “stock screener”. It has been used to bring forward potential stocks. A detailed analysis will surely give a different values than generated by the screener. Thanks for posting your comment. Good work.

  31. Hi, Thank you for such a detailed post on this topic which I was really looking for. I will use the steps for some of the stocks and I will share my views as well. BTW, normally, people will say that there will be exception when we do such analysis – for example, banks will be having more money which needs to be seen from right perspective (not as a free cash). Is there any such consideration while we use your above steps to analyze the stocks. Please clarify. Looking forward for your other posts to learn more. Thank you.

  32. Hi Mani Sir,

    I am a big fan of your stocks analysis sheet and thanks to you for that.

    I want to know that while putting the Balance sheet values in the sheet from moneycontrol, should I be picking the consolidated or standalone values (from moneycontrol). Please advise.

    Thanks

    1. Its better to use standalone data. It gives better idea about the core strength of the “parent business”.
      Thanks for your comment.

  33. The article was simple and lucid.I need one clarification.
    You have stated ‘A company relying too much on debt for its cash flow management will have lower FCFE”.But if a company borrows new debt its FCFE will rise.
    Seems contradictory…
    Kindly elaborate.

    1. Hello
      I want to buy some share but I am new I don’t know about can you please help me with that like which share I can buy right now.

      1. Very helpful blog. I have one que.
        In blog page, list of share is different from “more stocks”s list. Shares at number 8,9, 10 in more stocks full list are shown at number 1,2,3 in main blog page. Can you please tell which list number is more reliable. I am so much confused everytime i see lists in blog page and more stocks full list page.

      2. Please treat this as serial numbers, not ranks. You will find it easier to comprehend.

  34. Very good article about how to choose a stock before purchasing the same. I have not come across such a detailed article before except an article on site of StockAxis.

    Very helpful.

  35. I have purchased Karnataka bank shares 100 at Rs 155, as its Market price is lower than true value which is Rs 197. But from past three years Karnataka bank shares have not reached its true value Rs 197. Now what should I do?.

  36. This is the first time that I have read something very useful about stock investing. I am holding Man industries, Visesh infoteck, Havisha hosp & infra in my portfolio. Please give me some advice on this stock.
    Thanking you
    T.C.Raveendran

  37. This is a very good article to analysis market, & how to make own list . It’s really good to work. I m very impressed because to cover all fundamental reasons to choose our best stock.

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