The movement of share market in India is quite similar to that of a roller coaster ride, full of ups and downs. That’s why serious investors prefer to include the safest stocks in their portfolio which can not only help them withstand the uncertainty of share market in India but also generate superior risk-adjusted returns.
During the height of the global financial crisis of 2008, the Standard & Poor’s 500 based on the market capitalizations of 500 large-cap American companies crashed 9%, its second worse ever crash in history. The cascading effects can be seen in the Indian share market as well, which crashed heavily during this period.
However, even in such a grim situation, there was one stock that outperformed the Standard & Poor’s 500 and ended in positive. It was Coca-Cola because it had beat the estimates with a jump in its revenue and earnings.
The financial crisis has wiped out billions of dollars from the top 100 global brands. Coca-Cola was one company which managed to hold on to its position despite a challenging year. No wonder legendary investor Warren Buffett’s biggest holdings is in Coca-Cola.
Now the question arises: How to identify stocks like Coca-Cola in the stock market?
Here are a few stock market tips to help you find the safest stocks in the Indian share market:
Choose the sector carefully
Before investing in any stock, it is very important to study the sector first. Even the best company in a fragile industry will often underperform the market when the sector moves out of favor. FMCG, IT, Automobile sector stocks top the list when it comes to the safest stocks in the share market in India.
Don’t forget to incorporate large-cap stocks in your portfolio
Large-cap companies are established businesses with stable and diversified streams of cash flow. They have been in business for years and have a proven track record to withstand difficult periods. A healthy portfolio should comprise a well-balanced mix of small-cap, mid-cap and large-cap companies to achieve optimal returns with minimum risk.
Look for companies with regular dividend payouts
Companies which pay regular dividends are considered stable. Growth in dividend indicates a company’s sound financial health. Regular dividend-paying stocks are regularly recommended by most stock market tips for long term wealth creation. However, this completely depends on the profile of an investor. If the investor is looking for high returns, he can invest in growth companies where the company does not pay dividends.
To conclude, the best way to find the safest stocks in the share market is by doing thorough research and avoiding stock market tips and media noise. Before investing on the basis of any stock market tip, always look at the company, its business models, its competitive edge, management pedigree and its financials.