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New Delhi: Every person who invests in the stock market is looking for a golden opportunity that will increase the capital manifold. However, recognising that one right stock from thousands of listed companies is like finding a needle in a haystack.
One of India's most successful investors and Chairman of Motilal Oswal Financial Services, Ramdev Agarwal has expertise in finding such 'diamonds'. Let’s look at how the market expert stands out from the crowd and pick the stocks which give huge returns in the future.
The most important part of Ramdev Aggarwal's investment strategy is 'finding untapped companies'. He likes to bet on companies that are not yet in the news or limelight.
Aggarwal said that when he bought the shares of Balkrishna Industries which had a market value of Rs 100 million. The company's fundamentals were excellent. The P/E ratio (P/E Ratio) was only 1 and the Return on Equity (ROE) was between 30 and 40 percent. Despite this, no one was asking for it in the market. Agarwal met the company's management, listened to his idea and trusted the business model. This belief proved true and within just two years the stock price jumped from Rs 100 to Rs 1,200.
Often new investors buy a stock only because it is running fast. Ramdev Agarwal considers it a big mistake. According to him, the more important thing is the growth of the company, at what price (Valuation) you are buying it. For this, he considers the PEG ratio (Price/Earnings to Growth) as his biggest weapon.
In simple terms, if a good company has a PEG ratio of 1 or less, it means that the stock is being sold at a cheap or reasonable price according to the speed of its growth. If this ratio is high, then the stock is expensive.
Discipline (Discipline) is everything in the world of investing, even if sometimes it causes you to miss opportunities. Agarwal shared an anecdote related to Asian paints, which is a reminder for every investor. He wanted to buy the shares of Asian Paints, but at his fixed price.
When the stock was at Rs 20, they were waiting for Rs 15. When he made up his mind to pay Rs 20, the price went up to 25. Finally, when he agreed to buy at Rs 23, he stopped on the advice of a friend that the price would fall. But the price did not fall, but rose to Rs 90. Agarwal could not earn a single penny in that historic rally. Despite this, he has no regrets. He believes that it is better to let go of the opportunity than falling into 'FOMO' (FOMO — fear of missing out) and buying shares at the wrong price. Discipline is the secret of playing long innings in the market.
Showing profits on paper and getting real money in a bank account are two different things. While testing any company, Ramdev Agarwal places a lot of emphasis on its ROE (Return on Equity) and prefers companies with at least 25% ROE.
Agarwal says he also studies how quickly the company is able to recover its money from the market. If the ROE of a company is fantastic, but it is taking 100 to 120 days to get the payment after selling the goods, then this is an alarm bell. Agarwal says that 'cash flow is the king'. If the company's money is stuck in the market, the balance sheet figures can be misleading. Therefore, the investor must look closely at the company's ability to recover cash, not just profits.
(Disclaimer: This article is only meant to provide information. TV9 does not recommend buying or selling shares or subscriptions of any IPO, Mutual Funds, gold, silver and crypto assets.)
