There is lot of hopelessness along with fear towards small and mid caps in 2019.  The reason is the carnage in stock prices of many well-known companies. Retail investors have taken the back foot and lost their faith and conviction towards investing in small and mid caps due to existing pain in their portfolios.

Despite that we are quite excited about opportunities emerging in small and mid cap space. You may argue that most of small and mid caps have wiped out your hard earned gains over last couple of years. In fact those who invested in small caps over last 2 years are sitting on significantly higher losses and may be thinking to stay away from them.

However, we beg to differ. We firmly believe that these are the opportune times to invest in broader markets instead of large caps. During bear phase in broader markets, negative sentiments around small and mid caps have brought down excellent businesses down to historically low valuations. The fall in stock prices of many small and mid caps by more than 50% from their peaks has not happened for the first time. This has happened in past and companies with good business fundamentals have always bounced back strongly.  When overall market sentiments are negative like we are witnessing now, quality businesses also face the heat. As bad stocks go down, good stocks go down with them too. But good companies make a stronger come back with earning revival once economy cycle starts its upturn.

Let us share some valuable insights to make you understand why we believe buying the right set of small and mid caps now can be a massive wealth creating opportunity in the long run. To make our readers understand bull as well as bear phase of markets, we have covered long term monthly charts of some of our own small and mid cap stocks recommendations (released under Hidden Gems and Value Picks) over last 9 years which at one point of time were down by 50% to 70% from their peak but turned out to be multibagger stocks in longer run delivering 5x to 64x returns.

Below are the Monthly Chart (since Jan'10) of 8 Multibagger Small Cap Stocks released under Hidden Gems service. 

1. Camlin Fine Sciences (Hidden Gem released on 27th Mar'11) - Read Old Report

Above is the monthly chart of Camlin Fine Sciences which we recommended as Hidden Gem on 27 Mar’11 at 6.05*. The stock made life time high of 155 in Jan 2018 and later crashed to lows of 36.70. At current price of around 60, it is still a 10-Bagger for investors who bought it during lows of 2011 or 2013 but those who invested later during 2015 – 2017 period are bearing losses as of now.

2. Kovai Medical (Hidden Gem released on 27th Oct'11) - Read Old Report

3. Roto Pumps (Hidden Gem released on 05th Aug'12) - Read Old Report

7. Visaka Industries (Hidden Gem released on 05th Jul'15) - Read Old Report

Let us look at monthly chart of our another Value Pick stock – Mindtree recommended on 23 Mar 2014. Mindtree also witnessed severe correction of 61% from its peak of Jan 2010 and tested patience of investors for nearly 4 years. Those who stay invested and sit patiently on the stock were rewarded over next 2 years as stock rallied from 195* to 795* delivering more than 300% returns.

Above is the monthly chart of Heritage Food of last 9 years. During bear phase of 2011 – 2012, stock price fell by 52% from its peak price of 2010. However,  the same company delivered 525% during bull phase in matter of 30 months. Stock made all time high of 884 in Oct 2017 turning mega 28-Bagger stock from lows of Jun 2012.

Can Fin Homes witnessed severe correction of 67% from its peak during last year. However, the same stock created significant wealth for investors who invested in the company during beginning of this decade. Even after severe correction in stock price over last 2 years, stock is a 12-Bagger for investors who invested in the company at high of 2010 and a 20-Bagger who invested at lows of 2012.

Above is the monthly chart of Sonata Software since Jan 2010. The stock price fell by 76% in 2 years from high of 69 made in April 2010. Investors who bought at highs of Apr 2010 were in losses for almost 5 years but those who held it tightly were rewarded handsomely over next 4 years. Sonata Software made all time high of 428.40 in Sept 2018 turning 7-Bagger for those who entered at highs of 2010.

Looking at long term charts of most of the companies with good businesses, you will realise that investors who entered in market by investing in small and mid caps during last 2 to 3 years have pain in their portfolio however those who invested in bad phase of market in 2011 - 2013 like that of today are still holding plenty of multibaggers in their portfolio. That is why its important to invest in equities keeping a real long term view. In fact, during turbulent times, we must increase investments / equity allocation in small / mid size companies which have good business fundamentals with better earning visibility and robust cash flows from their operations to get rewarded in big way in long run.

BSE Small Cap Index went up by 69% in 2014 and during the same year numerous small and mid cap stocks turned multi-bagger delivering mind boggling returns. Scenario was similar in 2017 when BSE Small Cap Index rallied by 58%, later broader market went into bear grip with significant sell off in many small and mid caps due to expensive valuations and series of negatives developments followed by slowdown in economy.

If you analyse BSE Small Cap Index YoY returns, you will realise that small cap index not only recovered but also delivered astonishing returns in short span of time once tide turns favourable. In last 16 years, small cap index delivered significantly higher returns in single year every four years. In past, we experienced fierce rally in small caps in years like 2007, 2009, 2014 and 2017. We have seen in monthly charts of various stocks, how these stocks turned multibaggers in period of 12 to 24 months during bull phase of stock market.

Coming back to the current situation, the small cap index is down by 35% from its peak made in January 2018. The liquidity crisis in NBFCs, the DHFL and IL&FS defaults, series of rating downgrades by rating agencies, lenders dumping stocks of debt laden companies and recent slowdown in economic growth have taken the steam out of small caps. Fear and misinformation has shattered investor’s confidence and hence quality businesses are back to cheap valuations.

Do not stop investing in small caps looking at these turbulent times, its time to do the opposite, this phase has happened before and small and mid caps have always bounced back. Good sentiments as well as bad sentiments do not last forever.

Simple & Effective Strategy for Buying Potential Multibagger Stocks

If we stick to basic rules of investing and put our money in fundamentally strong small and mid cap stocks, we will have multibaggers in our portfolio. We have a long list of super-duper multibaggers like Jubilant Foodworks, Page Industries, Aurobindo Pharma, Amara Raja Batteries, Natco Pharma, Cera Sanitaryware, Can Fin Homes, Camlin Fine Sciences, Mayur Uniquoter, Kovai Medical, TCPL Packaging, Roto Pumps etc.

It is obvious that this consistent success is not the result of chance or good luck. Instead, there is a carefully thought out strategy behind it. Below are some of the strategies which an investor needs to always follow for buying winning stocks which can deliver multibagger returns.

1. First identify the sectors doing well and then the best stocks in it:

There are two well-known strategies for buying stocks – the “top down” approach, in which you focus on the Industry / Sector (e.g. consumer non-discretionary), and the “bottom up” approach, in which you focus on individual stocks (e.g. Page Industries).

We follow a unique method that is a combination of both methods. We buy only the best stocks in the best performing sectors. Applying this method in past, we have avoided investing funds in dud sectors like realty and infra even though individual stocks looked very promising.

2. Buy stocks only if the requirements in the check-list are met:

We follows a rigorous process of checks and balances before we trust a stock offers right investment opportunity. These are:

(a) Know the management and its credentials / pedigree

(b) Understand the business model and growth prospects of the company

(c) The company must have positive cash flows

(d) The debt must be low or negligible

(e) The company must have pricing power and not be vulnerable to excessive competition.

3. Focus on information and not on hype:

In times of boom and bust investors tend to carried away by the noise around them. We advice investors to be rigidly focused on tangible information in the form of financial statements. “Never get carried away by the cacophony and hype on Dalal Street”. Its always wise that investors should “identify the nuts and bolts that drive the growth and profitability of the company”.

4. Recognize your mistakes and cut your losses:

This is very important, most investors suffer from “loss aversion” and like to be in denial that they have made a mistake. If they want to raise money, they will sub-consciously sell the stocks where they have a profit but not those where they have a loss.

Considering our own experience where we made mistake by recommending investments in stocks like Firstobject Technologies, Anil Ltd, and Fiberweb. Once we knew that we had committed a blunder, we dispassionately ask our members to cut their losses before they could do further damage to their portfolio.

We are sure that by following our “old-fashioned” style of picking stocks after doing thorough research should help all of us to grow our money by picking some of the potential multibagger stocks in making and become better investors.

How to Pick Multibagger Stocks for Investments?

It is very important to evaluate company using vital parameters before finalizing it as an investment candidate. Many investors who are new to stock markets simply look at share price, its 52 week high & low and put their hard earned money in equities to work. And as we all know, most of the times this approach never works. Below are the 9 important parameters which are broadly used as tools for doing fundamental analysis of a company. Using these key parameters, Investors can pick winning multibagger stocks for their portfolio to get rewarded in long term.

1. Company’s History & Promoter's Credentials

This is one of the most important factor when one is looking to buy stock in an unknown company. It is best to look up the accounts for a couple of prior years and also read up the directors’ report. One should also do a Google search on the company and its promoters to see if they have ever been involved in shady or dubious deals.

2. Cash Flow

Cash flow is the amount of money coming in or going out of the business in a given period of time, say, one financial year. It helps to determine how much liquidity the company has. If a company is “cash flow positive”, it means that it is generating more cash from the business than it is paying out. This is a positive sign because it means the company has bargaining power. It is selling to its customers and receiving payment early while it is buying from the suppliers and paying them late.

If a company is “cash flow negative”, it is a dangerous sign because it means that the company has no liquidity and is desperately dependent on its suppliers and creditors. They can hold the company to ransom by choking its credit limits.

3. EBITDA 

EBITDA stands for “Earnings before interest, taxes, depreciation and amortization”. EBITDA tells the investor, the profit that the company is making from its operations. If the EBITDA is negative, then it is a very negative sign because it means that the company is losing money in its core profitability.

The EBITDA margin is computed as a percentage of sales and EBITDA. For instance, in a company had sales of Rs. 100 and an EBITDA of Rs. 12, its EBITDA margin would be 12%. The higher the margin, the better it is.

Example: Hawkins Cookers’ EBITDA in the year ended 31.3.2019 was Rs. 90.33 crores. Its sales were Rs. 652.84 crores and so the EBITDA to Sales margin was 13.84%.

4. EPS (Earning Per Share)

EPS (Earning Per Share) = Net Profit / Number of Outstanding Shares

There are variants such as the “Diluted EPS” which means that even the shares that will be issued in the future pursuant to outstanding warrants or bonds are also considered.

Example: Hawkins Cookers’ net profit for the year ended 31.3.2019 was Rs. 54.22 crores. The number of equity shares were 52.88 lakhs and so the EPS for last financial year was Rs. 102.53.

“Cash EPS” is worked out by taking the operating cash profits (without reducing non-cash expenditure such as depreciation).

5. P/E Ratio

The Price-Earnings (PE) Ratio is a valuation ratio of the company’s current share price compared to its earnings per share (EPS). In other words, how of a multiple of the EPS is one paying to buy the stock.

This criteria helps to identify, how cheap or expensive a stock is compared to its peers. It is calculated with the formula: 

Market Value per Share / Earnings Per Share (EPS)

For example, if the stock is available at Rs. 20 each and the EPS is Rs.5, the PE ratio is 20/5 = 4.

The PE is usually calculated on the EPS of the previous 12 months (the “trailing twelve months” (TTM).

The PE ratio can be used to benchmark companies within the same Industry or sector. For example, if one is comparing two PSU banks, if one has a PE of 5 and the other has a PE of 8, the question is why one is paying a premium for the second one and whether there is a valuation aberration somewhere that an investor can take advantage of.

Example: Hawkins Cooker’s EPS in the year ended 31.3.2019 was Rs. 102.53 (as calculated above). The market price per share as on 31st March 2019 was Rs. 3011 and so the PE ratio on 31st March was 29.7.

6. Return on Equity (ROE)

ROE or Return on Equity indicates how efficiently the management is able to get a return from the shareholders’ equity. ROE is calculated with the following formula:

Net Income / Shareholders’ Equity

Example: Suppose a company earned Rs. 1,000 in profit and the total equity capital is Rs. 2000. The ROE is 1000/2000 = 50%.

Suppose another company in the same sector/ industry earned a ROE of 30%. You know which company is a more efficient utilizer of capital.

A variation of the same concept is the Return on Net Worth of RONW in which we take in not only the equity capital but also the retained earnings (reserves).

7. Debt Equity Ratio

Debt Equity Ratio is the proportion of debt to equity used to run the company’s operations. It is calculated with the following formula:

Total liabilities / equity share capital + reserves

When examining the health of your business, it's critical to take a long, hard look at company's debt-to-equity ratio. If Debt Equity ratios are increasing, meaning there's more debt in relation to equity, Company is being financed by creditors rather than by internal positive cash flow, which may be a dangerous trend.

The debt/equity ratio also depends on the industry in which the company operates. For example, capital-intensive industries such as capital goods, auto manufacturing tend to have a debt/equity ratio above 2, while IT companies / Consumer Goods companies with high brand equity have a debt/equity of under 0.5.

8. Market Capitalisation

It is the value for the entire company can be bought on the stock market. It is derived by multiplying the total number of equity shares by the market price of each share.

This helps to determine whether the stock is undervalued or not. For instance, if a stock with a consistent profit of Rs. 100 is available at a market cap of Rs. 200 is undervalued in comparison to another stock with a similar profit but with a market cap of Rs. 500.

Example: Hawkins Cooker’s has issued 52.88 lakh shares. The price per share as on 31st March 2019 was Rs. 3011 and so the market cap of the company on that date was Rs. 1592 crores. This means, theoretically, that if you had Rs. 1592 crores, you could buy all the shares of Hawkins Cooker.

9. Dividend Yield

‘Dividend Yield’ is a financial ratio that shows how much the company pays out in dividends each year relative to its share price. It is calculated by the following formula:

Interim + Annual Dividends in the year/Price per share x 100

If you find that company is paying consistent dividend year after year with dividend yield of above 7%, you can think to invest in such stocks instead of blocking your money in fixed deposits. Here, you can think of some appreciation in stock price along with 7% returns on yearly basis through dividend payment. 

Example: Hawkins declared a dividend of 700% (Rs. 70 per share). Because its market price as on 31st March 2019 was Rs. 3011, the dividend yield on 31st March was 70/3011×100 = 2.32%.

Do you know, Hawkins has multiplied investment by almost 85 times in last 14 years. Rs 1 lakh invested in Hawkins on 1st Jan 2005 is worth Rs. 89 lacs as on 31st March 2019, that too excluding dividends received by Investors. Hawkins share price was Rs. 33.50 on 1st Jan 2005 and Hawkins share price on 31st March 2019 was Rs. 3011 giving astonishing returns of 8888% to investors with CAGR of nearly 40% in last 14 years. Moreover, dividend payout of Rs. 70 is more than double the stock price of Hawkins in Jan 2005.

Dear Reader,

In the stock market there is no rule without an exception, there are some principles that are tough to dispute. Here are 10 general principles to help investors get a better grasp of how to approach the market from a long-term view. Every point embodies some fundamental concept every investor should know while investing in equities.

1. Ride the winners not the losers

Time and time again, investors take profits by selling their appreciated investments, but they hold onto stocks that have declined in the hope of a rebound. If an investor doesn't know when it's time to let go of hopeless stocks, he or she can, in the worst-case scenario, see the stock sink to the point where it is almost worthless. Of course, the idea of holding onto high-quality investments while selling the poor ones is great in theory, but hard to put into practice. The following information might help:

Riding a Winner - The theory is that much of your overall success will be due to a small number of stocks in your portfolio that returned big. If you have a personal policy to sell after a stock has increased by a certain multiple - say three, for instance - you may never fully ride out a winner. No one in the history of investing with a "sell-after-I-have-tripled-my-money" mentality has ever had a tenbagger. Don't underestimate a stock that is performing well by sticking to some rigid personal rule - if you don't have a good understanding of the potential of your investments, your personal rules may end up being arbitrary and too limiting.

Selling a Loser - There is no guarantee that a stock will bounce back after a decline. While it's important not to underestimate good stocks, it's equally important to be realistic about investments that are performing badly. Recognizing your losers is hard because it's also an acknowledgment of your mistake. But it's important to be honest when you realize that a stock is not performing as well, as you expected it to. Don't be afraid to swallow your pride and move on before your losses become even greater.

In both cases, the point is to judge companies on their merits according to your research. In each situation, you still have to decide whether a price justifies future potential. Just remember not to let your fears limit your returns or inflate your losses.

2. Avoid chasing hot tips

Whether the tip comes from your brother, your cousin, your neighbour or even your broker, you shouldn't accept it as law. When you make an investment, it's important you know the reasons for doing so; get into the basics by doing research and analysis of any company before you even consider investing your hard-earned money. Relying on a tidbit of information from someone else is not only an attempt at taking the easy way out, it's also a type of gambling. Sure, with some luck, tips sometimes pan out but they will never make you an informed investor, which is what you need to be to be successful in the long run. Find out what you should pay attention to - and what you should ignore.

3. Don't sweat on the small stuff

As a long-term investor, you shouldn't panic when your investments experience short-term movements. When tracking the activities of your investments, you should look at the big picture. Remember to be confident in the quality of your investments rather than nervous about the inevitable volatility of the short term. Also, don't overemphasize the few bucks difference you might save from using a limit versus market order.

Active traders will use these day-to-day and even minute-to-minute fluctuations as a way to make gains. But the gains of a long-term investor come from a completely different market movement - the one that occurs over many years - so keep your focus on developing your overall investment philosophy by educating yourself.

4. Don't overemphasize the P/E ratio

Investors often place too much importance on the price-earnings ratio (P/E ratio). Because it is one key tool among many, using only this ratio to make buy or sell decisions is dangerous and ill-advised. The P/E ratio must be interpreted within a context, and it should be used in conjunction with other analytical processes. So, a low P/E ratio doesn't necessarily mean a security is undervalued, nor does a high P/E ratio necessarily mean a company is overvalued.  

5. Resist the lure of penny stocks

A common misconception is that there is less to lose in buying a low-priced stock. But whether you buy a Rs. 5 stock that plunges to Rs. 0 or a Rs. 75 stock that does the same, either way you've lost 100% of your initial investment. A lousy Rs. 5 company has just as much downside risk as a lousy Rs. 75 company. In fact, a penny stock is probably riskier than a company with a higher share price, which would have more regulations placed on it.

6. Pick a strategy and stick with it

Different people use different methods to pick stocks and fulfill investing goals. There are many ways to be successful and no one strategy is inherently better than any other. However, once you find your style, stick with it. An investor who flounders between different stock-picking strategies will probably experience the worst, rather than the best, of each. Constantly switching strategies effectively makes you a market timer, and this is definitely most investors should avoid. Take Warren Buffett's actions during the dotcom boom of the late '90s as an example. Buffett's value-oriented strategy had worked for him for decades, and - despite criticism from the media - it prevented him from getting sucked into tech startups that had no earnings and eventually crashed.

7. Focus on the future

The tough part about investing is that we are trying to make informed decisions based on things that have yet to happen. It's important to keep in mind that even though we use past data as an indication of things to come, it's what happens in the future that matters most.

A quote from Peter Lynch's book "One Up on Wall Street" (1990) about his experience with one of the stock he bought demonstrates this: "If I'd bothered to ask myself, 'How can this stock go any higher?' I would have never bought it as stock price already went up twenty fold. But I checked the fundamentals, realized that company was still cheap, bought the stock, and made seven fold after that." The point is to base a decision on future potential rather than on what has already happened in the past.

8. Adopt a long-term perspective.

Large short-term profits can often entice those who are new to the market. But adopting a long-term horizon and dismissing the "get in, get out and make a killing" mentality is a must for any investor. This doesn't mean that it's impossible to make money by actively trading in the short term. But, as we already mentioned, investing and trading are very different ways of making gains from the market. Trading involves very different risks that buy-and-hold investors don't experience. As such, active trading requires certain specialized skills.

Neither investing style is necessarily better than the other - both have their pros and cons. But active trading can be wrong for someone without the appropriate time, financial resources, education and desire.

9. Be open-minded

Many great companies are household names, but many good investments are not household names. Thousands of smaller companies have the potential to turn into the large blue chips of tomorrow. In fact, historically, small-caps have had greater returns than large-caps; over the decades.

This is not to suggest that you should devote your entire portfolio to small-cap stocks. Rather, understand that there are many great companies beyond those in the Small Cap Index, and that by neglecting all these lesser-known companies, you could also be neglecting some of the biggest gains. We have already experienced the multibagger returns from lesser known companies recommended under Hidden Gems service in past, our stock picks like Camlin Fine Sciences, TCPL Packaging, Kovai Medical, Wim Plast, Acrysil, Mayur Uniquoters, Balaji Amines, Rane Brake Linings etc have delivered returns in the range of 500% to 1800% over period of 2 to 5 years.

10. Don't miss to diversify your equity portfolio

Its always wise to have stocks from different sectors and Industries. Do not expose your self to many stocks from the same sector. Be it IT, Consumers, Finance, Infrastructure, Pharmaceutical or any other sector, you must have a proper mix of all with suitable allocation based on future outlook of that sector and industry. Most of the companies from capital goods and Infrastructure sector have not performed since last 6 to 7 years but private banking stocks, NBFCs, consumers and automobile companies stocks are making new all time highs. Hence, its important to stay diversified with your stock investments.

Wish you happy & safe Investing!

Regards,
Team - Saral Gyan.

Are you looking for a long-term winner — a multibagger? It's simple! Buy shares of a company with strong fundamentals and consistently high financial performance.

To evaluate a company’s efficiency and the quality of its management, the two key financial ratios to be keenly observed are return on net worth (RoNW) and return on capital employed (RoCE). Besides, price-to-earnings ratio could be used to determine the market price of a company’s stock and to compare it with peers’ in the same sector. Price to book value measures the value of shareholder's ownership in the company. 

While earnings yield — the quotient of earnings per share divided by the share price — needs to be seen to compare directly against the returns offered by alternative investments such as interest on a bond or savings account, debt-to-equity ratio could measure a company’s financial leverage. A high debt-to-equity ratio generally means that a company has been aggressive in financing its growth with debt. This could result in volatile earnings because of additional interest expenses. 

TTK Prestige, a leader in the Indian kitchenware market, is one of the stock in the list of multibaggers, with compound annual returns of 59.6 per cent in 11 years. In other words, Rs 1,000 invested in 2005 is valued at more than Rs 1 lakh today. A 100-Bagger stock in 11 years. This is just one of the example, there are companies which have given much better returns than TTK Prestige during the same period. Do you know, Symphony has given compounded annual returns of astonishing 102% in last 11 years. Investment of Rs. 1000 in Symphony in Jan 2005 is valued more than Rs. 22 lakhs today. Mind boggling, isn't it? It's a 2200-Bagger stock in last 11 years. These companies have turnaround their performance and hugely benefited from market growth driven by rising consumer spend, offering value added products with strong moat, evolving lifestyle preferences and broad demographic trends.

TTK’s product range and distribution have complemented the strong brand, helping it clock a revenue CAGR of 22.6 per cent in 11 years. The profit has grown at an even higher CAGR of 32.5 per cent, backed by its premium products and a debt-free status, from a debt-to-equity ratio of two in 2004. The efficiency and the quality of its management measured from consistently high RoNW and RoCE helped it become the most valuable company in the past decade. 

Titan Industries, has made its investors 37 times richer in last 10 years, with its profit growing at 27.1 per cent CAGR. However, the top-class performance in the decade may cool a little in the coming years, as demand is expected to slow down, given the tough environment. Among other most valuable mid and large cap companies of the decade are Godrej Consumer, GMDC, SKF India, IndusInd Bank, Bajaj Finance and HDFC Bank.

Stock market investment runs in sector-specific cycles. The stocks in a particular sector get bigger and give better returns as that sector gets popular. For example, between 2002 and 2007, realty, metals and capital goods companies topped the gainers’ list. The demand for housing and strong investment in capital goods and infrastructure projects saw Unitech, JSW Steel, Pantaloon Retail, Sesa Goa, Alstom T&D, Jubilant Life, Crompton Greaves, Siemens and Thermax emerge as top companies on the multibagger list.

If we look into top 200 stocks by market capitalisation with trading history of more than 10 years, we find there are 158 stocks that have outperformed the benchmark index with 10-year CAGR of more than 17.4 per cent each. Of these, as many as 99 stocks have been multibaggers — giving their stakeholders gains of over 10 times on investment made 10 years earlier, or annual average returns between 26.6 and 71 per cent. Of these, 59 have been long-term winners — the companies that have given very good high returns in 10 years as well as during the economic slowdown seen in last couple of years.

Among these 59 stocks, 10 have been consistent performers, that is, 20 per cent CAGR in sales and profit over the past decade as well as in last two consecutive years. These companies have recorded very high financial ratios, both RoNW and RoCE, and given strong earnings yield — significantly higher than the other prevailing investment avenues.

The consistent performers are from the sectors like auto ancillaries, banks, consumer durables, pharmaceuticals, housing finance, fertilisers, FMCG and mining. The drop down list of 59 companies, too, has similar sectoral compositions, with additions from automobiles and capital goods.

This clearly shows the merit in backing fundamentals over trying to time the market. Fundamentals are the most important; one has to analyse management credibility and capability, quality of the product, financial health and competitors’ position and then decide on whether to buy a stock. At the same time, when markets are not doing well, choice of high dividend paying companies and those with healthy cash balance helps. Hence, there is an element of market environment which needs to be considered.