How to Find Strong Fundamental Stocks.
🔍 1. Screen for
Fundamental Parameters
|
Parameter |
Ideal Range / What to Look For |
|
Market Cap |
Mid-cap or large-cap for stability |
|
Return on Equity |
> 15% (indicates efficient use of capital) |
|
Return on Capital Employed (ROCE) |
> 15% (measures overall efficiency) |
|
Debt to Equity |
< 0.5 (lower debt = less financial risk) |
|
Current Ratio |
> 1.5 (shows liquidity strength) |
|
Profit Growth (5Y) |
> 10% CAGR |
|
Sales Growth (5Y) |
> 10% CAGR |
|
EPS Growth |
Consistent growth preferred |
|
Free Cash Flow |
Positive and growing |
|
Promoter Holding |
> 50% preferred, low pledging |
📊 2. Analyse Financial
Statements
Study the Balance Sheet, Profit & Loss Statement,
and Cash Flow Statement of shortlisted companies:
Revenue & Net Profit growth year-on-year
Stable or expanding profit margins
Consistent dividend payouts
Healthy cash flows
Low or reducing debt levels
📈 3. Understand the
Business Model
Is it in a growing industry?
Does it have a competitive advantage (moat)?
Is it a monopoly or duopoly in its segment?
Does it have pricing power?
How does it fare against competitors?
🧠 4. Qualitative Analysis
Look at:
Management quality (track record, integrity)
Corporate governance
Promoter pledging of shares
News about fraud, litigations, or poor practices
💰 5. Valuation
Use ratios like:
P/E Ratio (compare with industry peers)
P/B Ratio
EV/EBITDA
PEG Ratio (P/E to growth)
Don’t overpay—even a great business can be a poor
investment at a high price.
📘 6. Stay Updated
Follow:
Annual reports
Investor presentations
Earnings calls
Regulatory filings (BSE/NSE)
🔝 Bonus: Examples of
Fundamentally Strong Stocks in India (as of 2025)
[Note: Always do your own research before investing]
HDFC Bank
Tata Consultancy Services (TCS)
Infosys
Asian Paints
Nestle India
Avenue Supermarts (DMart)
Pidilite Industries
Bajaj Finance
Divi’s Labs
Titan
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