Investing in the stock market is one of the most lucrative ways to grow your wealth over the long term. In India, the stock market has grown at an average rate of 15% per year over the past decade, making it an attractive destination for investors looking for long-term returns. In this blog, we'll discuss what a long-term investment is, why long-term investments are good, how long-term investments work, and how to pick the best stocks for long-term investment in India.
What is a long-term investment?
Long-term investment in stocks could be the period of more than 5/7 years (it could be different for each investor). Now, fundamentals and other aspects of the company like financials, management, and efficiency play a critical role when looking for the best shares to invest in India for long term.
The stocks that we are going to discuss are stocks that one can accumulate with a long-term investment horizon that will accrue significant compounding benefits in the future, so one can look to pass them on to their children as well. So. let's see the best stocks to invest in India for long term. But before we move ahead, let’s understand some basics of long-term investing.
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Why are long-term investments in stocks good?
Long-term investments in stocks are good for several reasons. Here are some of the key benefits:
Compounding: One of the biggest advantages of long-term investments in stocks is the power of compounding. Compounding is the process of reinvesting your returns to earn even more returns. Over a long period of time, this can significantly increase your wealth.
Lower risk: Investing in stocks for the long term can help lower your risk. Short-term investments are more volatile and subject to market fluctuations, which can lead to losses. By investing for the long term, you have more time to weather these ups and downs and potentially earn higher returns.
Higher returns: Historically, stocks have provided higher returns compared to other types of investments like bonds or real estate. By investing in stocks for the long term, you can potentially earn higher returns and build wealth more quickly.
Tax benefits: In many countries, long-term investments in stocks come with tax benefits. For example, in India, long-term capital gains on stocks are taxed at a lower rate compared to short-term capital gains.
How do long-term investments work?
Long-term investments work by allowing you to benefit from the long-term growth of your investments. This growth can be driven by a variety of factors, including the growth of the underlying company or industry, changes in market conditions, and changes in government policies. As long as you hold onto your investments over the long term, you can ride out short-term fluctuations and benefit from the long-term growth of your investments.
How do long-term investments help you become wealthy?
Long-term investments help you become wealthy by allowing you to benefit from the power of compounding. You can build up a lot of wealth over time if you reinvest your returns and keep your investments for a long time. This wealth can be used to achieve your financial goals, such as retirement or buying a home, and can help you achieve financial freedom.
How to choose stocks for long term investment in India
When picking the best shares to buy in India for long term, there are several factors you should consider that will help you know how to pick stocks for long term.
These include:
Quality of the company: When looking for the best long term stocks in India, look for companies that are well-established, have a strong competitive advantage, and are leaders in their industry.
Financial performance: Look for companies that have a strong financial track record, with consistent revenue and earnings growth.
Valuation: When choosing long term shares to invest in India, look for companies that are trading at a reasonable valuation, with a low price-to-earnings ratio and a high dividend yield.
Industry trends: Look for companies that are operating in industries that are expected to grow over the long term, such as technology, healthcare, and consumer goods.
Management quality: Look for companies that have a strong and experienced management team, with a proven track record of success.
Best stocks to invest in India for the long term investment in 2023
- Asian Paint is India’s largest paint manufacturer. The company derives 98% of its revenue from the paint business, while 2% of the business comes from the home improvement business. The company has a strong distribution network of more than 70,000 dealers and has introduced several innovative products, including adhesives and wood finishes, that face minimal competition in their respective industries.
- The company’s operating profit has seen consistent growth over the years, though it fell -1.07% in FY 2022 due to the impact on the operation in Sep to Dec 2022 on account of high inflation. Its operating margins remain stable at 17%, however, fell by 500 bps in FY22 mainly due to rises in material cost.
- The company is experiencing demand recovery and double-digit volume growth across its markets from December 2022 onwards. There is also expected to be a boost in rural demand due to a good monsoon and an increase in MSP. APL is seeing strong demand in industrial paint, particularly in the automotive segment. Institutional sales have also recorded healthy growth and are expected to continue growing in FY24 due to higher government capex on infrastructure.
- HDFC Bank has demonstrated robust consistency in CASA deposits, which gives access to lending low-cost funds, the high leading spread and aided to increase NIM and thereby profitability.
- Bank has maintained healthy asset quality matric due to stringent underwriting and a strong risk management system framework. As a result, result bank is able to keep its credit costs lower, which leads to high operating profits. A strong profit is expected to provide a high return on assets in FY24.
- Bank loan growth is likely to be sustained driven by retail loan growth due to a rise in two-wheeler loans, credit cards & personal loans with an increase in healthy discretionary spending. Bank’s corporate loan to rise driven by capex-led growth.
- ITC is the largest cigarette manufacturer in India. At present company operate five business division Cigarette, FMG other, Hotels, paperboards, paper and packing, and Agribusiness. Which account for 40%,27%,2%,11%, and 21% respectively, of their domestic sales. Its major growth comes from the FMCG segment.
- The company expects its growth to remain strong in FY24, driven by high volume growth and stability in cigarette taxes following the FY23 budget, cooling off inflation in input cost boost the FMGC growth and margins, 18.4% and 10% YoY respectively. while the hotel business witnessed revenue growth of 50.5% in FY22, which was 1.3x of Q3 FY20 and the margin came at 31.5%, 6.8% YoY.
- The company’s operating profit growth has remained consistent in FY21 and FY22 and operating margins remain stable in both years despite COVID and high inflation, while its peers struggle to maintain the margins. To maintain this growth over the next 2 to 3 years, the company is investing 300 Cr per annum in capacity expansion, back-end strengthening, and investment in the brand of key businesses.
- Divi's is a prominent manufacturer of Generic API, Custom Synthesis of API, and Intermediates in India, and holds a significant market share in the API industry. It has a marquee clientele in the pharmaceutical industry, including the top 12 global pharmaceutical companies.
- The company holds a market share of over 50% in Naproxen, Gabapentin, and Dextromethorphan. Its backward integration in the API segment provides a competitive advantage over its peers, resulting in higher margins. The company's operating profit has consistently grown along with stable margins over the years.
- The company is increasing its API capacities to meet the growing demand, which is expected to be fueled by the China One Plus initiative as well as upcoming opportunities in molecules going off-patent, with a potential size of US$20 million between FY23-25. This expansion will allow the company to capitalize on these opportunities and meet the needs of its customers.
- Zydus Lifesciences is one of the top five pharmaceuticals players in India. Its key brand in the consumer wellness segment holds a dominant market share, which accounts for 10% of its sales. The US formulations business is expected to benefit from the new product launched and volume growth from existing products.
- This reflects better growth momentum in the medium to long term, which is expected to be sustained on the back of a strong brand, large market shares, better penetration, and a new product launched. The company has established a significant presence in the US, India, Europe, and emerging markets like Latin America and South Africa.
- The company continued to invest to build a generic pipeline by filling 440 ANDA and has the largest pipeline in biosimilar. Its R&D as a % of revenue stood at 7% of Rs. 3,435, highest spend in 9MFY23, shows strong investment in R&D.
Concluding thoughts
In conclusion, investing in the stock market can be an excellent way to grow your wealth over the long term. By holding onto your investments over the long term and benefiting from the power of compounding, you can generate significant wealth and achieve your financial goals. When picking stocks for long-term investment in India, be sure to consider the quality of the company, financial performance, valuation, industry trends, and management quality. By following these guidelines, you can increase your chances of success and achieve financial freedom.
If you're also looking to invest in the Indian stock market for the short term in 2023, you need to be strategic and selective with your picks. By using our expert tips on how to choose the right shares, you can make informed decisions and potentially earn quick profits in a shorter timeframe. Here are the 5 best stocks to invest in India for short term in 2023.
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