Best Stocks: Top Stock to Buy for Long Term in India [2020]

We all want to buy good stocks, right? But there is a process that must be followed to find one. Here you'll find a screener which implements the process of screening good stock

One day I got a call from my former colleague. He questioned me about the best stocks to buy today. On the face of it, the question looks simple. But a very deep analysis is required to answer it. Why? [Check: best stock screener]

Because to answer this question we must first define, what it means by best stocks? From the perspective of investors, these are stocks which will yield the expected returns.

So for example sake, let’s assume that our expected return is 15% per annum. Any stock which has a potential to yield returns of 15% or more will be our best stock.

Best Stocks Screener

P.Note: If you are a repeated user of this screener, we suggest you to kindly clear the cache of your browser (ChromeFirefox etc) before using the screener. Else, you can also use the tool in the incognito mode.

What is a Potential Stock?

Stock which has the ability to yield expected returns are the “potential stocks”. Such stocks can also be broadly classified as undervalued stocks.

How to know if a stock is set to give the desired returns? Simple explanation: Suppose there is a stock whose intrinsic value is say Rs.100. Let’s also assume that its current market price is @Rs.85.

  • Discount to Intrinsic Value: Our example stock is currently trading at a 15% discount to its fair price. At current price levels, the stock has a strong tendency to go up by at least 15% soon (say in next few months).
  • Future Earnings Growth: Further more, suppose this company is also able to grow its earnings (EPS) at rate of 12% per annum for next five years. In this case, an investor who bought the stock at Rs.85 per share may also see an additional price appreciation of at least 12% per annum for next 5 years.

This way we can say that, our example stock has a potential to earn 12%-15% per annum returns in next 5 year period.

Undervalued and Overvalued Stocks

Not all undervalued stocks will yield the same returns. There will be a group of stocks which can yield like less than 10% returns. Another group may yield higher returns. So one thing is for sure, for a stock to earn the tag of being the “best”, it must first be undervalued.

An overvalued stock can never be the best one. Why? Because stocks bought at overvalued price levels has strong affinity to shed its price in times to come – resulting in negative returns.

Talking about overvalued stocks, there are two types of stocks which often trade at overvalued price levels:

  • First, are stocks of those companies whose business fundamentals are weak. These stocks tend of have an intrinsic value which is substantially lower than its current price.
  • Second, are stocks of those companies whose fundamentals are super strong. Hence their stocks are always in high-demand (like blue chip stocks). Current price of such stocks trade at levels higher than its intrinsic value (overvalued).

So when the search is for “best stocks”, we are indirectly referring to shares of strong businesses trading at undervalued price levels.

Strong Business Fundamentals

Best stocks invariably represents business which are strong. But again we must define the term strong business. Different people may use different parameters to confirm business fundamentals of company. In the process of developing our best stocks screener we’ve used the following parameters:

  • #1. Company Size: Large company also represents a large market share. Suppose there is a hypothetical market which has 100 consumers, and four companies operating in this space. Out of these 4 companies, one company serves about 40% consumers. In terms of size (market share), fundamental of this company is stronger. Read: Blue chip companies.
  • #2. Profitability: What is profitability? It is a measure of how much profit a company is generating for every Rupee it is spending. Suppose there are two companies (A & B) spending Rs.100 to run its business. A & B generates a profit of Rs.5 and Rs.8 respectively. In terms of profitability, fundamental of B is stronger. Why? Because for the same Rs.100 (cost) B is generating more profits than A. Read: Profitable companies.
  • #3. Growth Rate: A growing company is every investors favourite. No matter how small is the company today, but if its growth attributes are visible, investors will bank on them. In fact growth is such an important factor that even highly profitable companies tend to underperform (in stock market) as compared to growth stocks. Read: Fast growing companies.
  • #4. Price Valuation: Ultimately everything boils down to price. True investor will never buy an overvalued stock. Ultimately the size, profitability, and future growth rate should justify the buy price. How to know if the price is justifiable? By looking at its financial ratios or by estimating it’s intrinsic value.

Finding Best Stocks (Screener’s Logic)

Based on the above listed parameters, we’ve written a mathematical algorithm. Our screener uses this algorithm to give it a score (GMR Score). The higher is the score the better.

Few more insights into how the screener’s mathematics works. The screeners works in levels. Let me show you how:

  • Level #1: Market Capitalisation, total revenue and net profit of a company is considered to judge its size. A weighted average of these three numbers works as the first screening layer. Special care has been taken so that very large market cap companies (like RIL, TCS, HDFC, HUL etc) should not get unnecessary leverage over other companies.
  • Level #2: The screener gives more emphasis on the company’s profitability. A small but highly profitable business may score higher than a large companies like RIL, SBI etc. Profitability is measured w.r.t ROE, RoCE, Operating margin and net profit. More weightage is given to a company which sustains higher profitability for long periods of time.
  • Level #4: A company which shows faster growth of its revenue and earnings, earns a higher score. But again, emphasis is more on sustainable growth instead of short term growth. Talking about earnings, consideration is on Earning Per Share (EPS) instead of gross or net profit.
  • Level #5: The best measure of price valuation is the intrinsic value. But it is difficult to estimate it using screeners. Hence I personally use my stock analysis worksheet to estimate intrinsic value of my screened stocks. Our best-stock screener instead uses ratios to judge a company’s valuation. P/E ratio, P/B ratio, Dividend Yield, and PEG ratio is used score a company based on price valuation.

Further Classification

Our screen ranks stocks based on the algorithm called ‘GMR score’. But we have taken our screener one step further. There are sub-screeners which users can apply from their end. These sub-screeners can further customise the best stocks list based on the users preference.

Here are sub-screeners:

  • Sub-screener #1: Based on Market Capitalisation (M.Cap), the list can be further shortlisted. All companies trading in NSE/BSE, are classified into five sub-categories: (a) Very Large, (b) Large, (c) Mid-Size, (d) Small, and (e) Very Small. As a user you can use this sub-screener to find best stocks within these five sub-categories.
  • Sub-Screener #2: Another filter of Return on Equity (ROE) can also be applied. As a user you can shortlist your stocks based on their ROE numbers. All companies can be grouped into three sub-categories: (a) ROE>10, (b) ROE>15, and (c) ROE>20.
  • Sub-Screener #3: Like ROE, the companies can also be filtered based on their Return on Capital Employed (RoCE). I personally love shortlisting companies based on their RoCE. Why? Because I think this is the most accurate measure of company’s profitability. The sub-screener can be used to find group of companies whose RoCE is as follows: (a) RoCE>10, (b) RoCE>15, and (c) RoCE>20.

Important Final Step

I personally do not halt my analysis after screening best stocks. I prefer to take it one step further. How I do it? By estimating the intrinsic value of my screened stocks. There are two ways I like to do it.

  • First, I do it myself by doing manual calculation based on method like (a) NCAVPS, (b) Residual Income and, (c) DCF model.
  • Secondly, I prefer it this way. Why? Because we have spent lot of man-hours in developing this tool. It can estimate intrinsic value of stocks with click of few buttons. We call this tool “stock analysis worksheet“. The tool has been built to do a complete fundamental analysis of its stocks.

Conclusion

I hope you found this article and our best-stock screener useful. Frankly speaking there are no easy answers to finding a best stock for investing. The longer and most accurate way of doing it is through fundamental analysis of business.

An easier way is through our articles and tools. Using our tools the aim is to unearth ‘top stocks’ as accurately as possible.

A stock investor’s aim should always be to buy a fundamentally strong stock at undervalued price.

But a practical problem with this theory is that, our market consists of more than 5,000 number stocks. We cannot do fundamental analysis of all stocks. What is the way out? I use our best-stock screener to first shortlist stocks, and then use stock analysis worksheet to check its fundamentals more deeply.

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94 Comments

  1. 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.

  2. 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?

  3. 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

  4. 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

  5. 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.

  6. 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

  7. 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?

  8. 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

    • 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.

  9. 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?

  10. Hi Mani,

    Hope you and your family are safe.

    What is ideal amount of stocks to hold for these companies?

  11. 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?

    • 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. 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

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

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

  17. Hi

    If we buy undervalued stocks suggested by you then when shall we sell it? At what price?

  18. 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?

    • 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.

  19. 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

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

  21. 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

  22. 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 ..

    • 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!
      ————————————

  23. 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.

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

  24. 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.

  25. 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.

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

  26. 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.

  27. 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.

    • –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.

  28. 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?

    • 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).

  29. 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

    • 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.

  30. 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

  31. 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.

    • 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.

  32. 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.

  33. 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

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

  34. 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.

    • 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.

      • 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.

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

  35. 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.

  36. 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?.

  37. 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

  38. 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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