Fundamentally Strong Stocks in India: Meaning, Features & How to Invest in Them

With numerous stocks to choose from, it can be challenging to identify the best ones that will yield consistent returns. One approach to investing in the Indian stock market is to focus on fundamentally strong stocks. These are companies that have a solid financial foundation, a strong management team, and a promising future outlook.

In this blog, we will explore the top fundamentally strong stocks in India, along with identifying their features, factors, benefits, risks, and much more. Let’s begin.

Top Fundamentally Strong Stocks in India (2024)

Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.

Note: The data in this fundamental strong stock list, including the fundamental strong stocks share price, is from 31st May 2024. This data is derived from Tickertape Stock Screener.

🚀 Pro Tip: You can use Tickertape’s Stock Screener to research and evaluate stocks with over 200+ filters and parameters.

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Overview of the Best Fundamentally Strong Companies in India

Tata Consultancy Services Ltd

Tata Consultancy Services Limited (TCS) is engaged in providing information technology (IT) services, digital and business solutions. It has been at the forefront of innovation and technology for over 50 years, helping enterprises across 46 countries realise their business aspirations and transform for the future. As of 31st May 2024, the market capitalisation of the company is Rs. 13,92,782.79 cr. and the stock is 1.94x as volatile as Nifty. Over the last 5 years, the net income has grown at a yearly rate of 10.29%, vs the industry average of 10.17%. 

Infosys Ltd

Infosys Ltd is a global leader in next-generation digital services and consulting. It enables clients in more than 50 countries to navigate their digital transformation. With over four decades of experience in managing the systems and workings of global enterprises, Infosys expertly steers clients through their digital journey. With a market capitalisation of Rs. 6,06,591 cr. and is 2.26x as volatile as Nifty as of 31st May 2024. The market share has increased from 18.14% to 20.21% over the last five years. Furthermore, revenue has grown at a yearly rate of 15.15%, vs the industry average of 13.37% during the same period. 

Hindustan Unilever Ltd

Hindustan Unilever Ltd (HUL) is India’s largest fast-moving consumer goods company with a heritage of over 80 years. Its portfolio includes over 35 iconic brands across 20 distinct categories such as soaps, detergents, shampoos, skincare, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream and water purifiers. As of 31st May 2024, the market capitalisation of the fund is Rs. 5,56,629.92 cr. and is 1.57x as volatile as Nifty.  The large-cap stock has shown positive revenue growth at a yearly rate of 11.21%, vs the industry average of 11.06%, over the last 5 years. Additionally, the net income has grown at a yearly rate of 14.18% during the same period. 

ITC Ltd

ITC Ltd is a diversified conglomerate with businesses spanning FMCG, hotels, paperboards & packaging, agri-business and information technology. As of 31st May 2024, the market capitalisation of the stock is Rs. 5,44,583.55 cr. and is 1.77x as volatile as Nifty. Over the last 5 years, revenue has grown at a yearly rate of 9.83%, vs the industry average of 9.72%. The stock’s market share has increased from 92.64% to 93.27% during the same period. 

HCL Technologies Ltd

HCL Technologies Ltd is a next-generation global technology company that helps enterprises reimagine their businesses for the digital age. This fundamental strong company is engaged in providing a range of software development services, business process outsourcing services and information technology infrastructure services. As of 31st May 2024, the company has a market capitalisation of Rs. 3,64,278.88 cr. and is 2.18x as volatile as Nifty. Over the last 5 years, revenue has grown at a yearly rate of 14.7%, vs the industry average of 13.37%. The market share also increased from 12.72% to 13.9% over the same period.

Sun Pharmaceutical Industries Ltd

Sun Pharmaceutical Industries Ltd is the world’s fourth largest specialty generic pharmaceutical company and India’s top pharmaceutical company. It manufactures and sells pharmaceutical formulations and active pharmaceutical ingredients primarily in India and the United States. As of 31st May 2024, the company’s market capitalisation is Rs. 3,56,709.13 cr. and is 1.79x as volatile as Nifty. The large- cap company’s revenue has grown at a yearly rate of 10.19%, vs the industry average of 8.34%, over the last 5 years. Furthermore, the market share has also increased from 13.45% to 13.59% during the same period.

Coal India Ltd

Coal India Ltd is a maharatna public sector undertaking and the largest coal producing company in the world. It produces around 84% of India’s total coal production. As of 31st May 2024, the market capitalisation of Rs. 3,08,752.68 cr. and is 3.07x as volatile as Nifty. Over the last 5 years, revenue has remained steady at a yearly rate of 9.92% and the net income has also remained the same at a yearly rate of 31.96%.

Asian Paints Ltd

Asian Paints Ltd is the market leader in the decorative paints industry in India. It is also ranked among the top ten decorative coatings companies in the world. The company has operations in 15 countries and has 26 paint manufacturing facilities in the world servicing consumers in over 60 countries. As of 31st May 2024, the market capitalisation of Rs. 2,75,643.17 cr. and is 1.75x as volatile as Nifty. The revenue has grown at a yearly rate of 15.3%, vs the industry average of 14.98%. Furthermore, the market share has increased from 62.16% to 63.02% during the same period. 

Bajaj Auto Ltd

Bajaj Auto Ltd is an Indian multinational two-wheeler and three-wheeler manufacturing company. It is the world’s most valuable two-wheeler company and the second-largest two-wheeler company in India. Bajaj Auto has a presence in over 79 countries across the globe. The large-cap stock has a market capitalisation of Rs. 2,49,815.63 cr. and is 2.33x as volatile as Nifty. The market share has also increased from 34.98% to 36.19%. Over the last 5 years, revenue has grown at a yearly rate of 7.44%, vs the industry average of 6.71%.

Nestle India Ltd

Nestle India Ltd is a subsidiary of Nestle S.A. of Switzerland. It manufactures and markets milk products, beverages, prepared dishes and cooking aids, confectionery and baby foods. Some of its popular brands include Nescafe, Maggi, KitKat, Bar-One, Milkybar and Cerelac. As of 31st May 2024, the company’s market capitalisation is Rs. 2,37,929.88 cr. and is 1.78x as volatile as Nifty. Over the last 5 years, market share increased from 14.41% to 14.97%.

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What are Fundamentally Strong Stocks?

Fundamentally strong stocks are those of companies that have a robust financial foundation, characterised by factors such as consistent earnings growth, low debt-to-equity ratios, high return on equity (ROE), and stable cash flows. These stocks can be considered attractive long-term investments as they are less resistant to events such as economic downturns, thus, making them resilient and less susceptible to market volatility.

Features of Fundamentally Strong Stocks in India

The features of fundamentally strong stocks in India often include several key indicators:

• Consistent Earnings Growth: These companies show steady growth in earnings, highlighting their robust financial health.
• Healthy Debt Management: They maintain a favourable debt-to-equity ratio, indicating prudent financial management and less reliance on debt.
• High Return on Equity (ROE): A strong ROE reflects efficient use of capital and effective management.
• Sustainable Competitive Advantage: These companies possess distinct advantages, such as strong brand identity or innovative technology, securing their market position.
• Market Leadership: Leaders or significant players in their sectors often exhibit operational efficiencies and consistent profit generation.
• Robust Corporate Governance: Ethical management and transparent business practices foster investor confidence and trust.

Advantages of Investing in Fundamentally Strong Shares

Here are the benefits of investing in fundamental strong shares: 

• Lower Investment Risk: Companies with strong financial health are generally less volatile, offering a safer investment compared to those with poor fundamentals. Their resilience to economic downturns can protect investments during market instability.
• Consistent and Reliable Returns: Fundamentally strong companies tend to deliver consistent financial performance, translating into reliable returns for investors over time. This stability can be particularly attractive for long-term investors.
• Potential for Capital Appreciation: Stocks of companies with solid fundamentals often have a good potential for capital appreciation. As these companies grow and succeed, their stock value is likely to increase, benefiting shareholders.
• Dividend Yield: Such companies frequently distribute dividends, providing a steady income stream. This can be especially beneficial for income-focused investors, offering returns independent of market fluctuations.
• Enhanced Market Confidence: Investments in companies with clear financial paths, strong earnings, and good governance typically enjoy higher confidence among investors. This transparency and reliability often lead to higher market valuations.
• Protection Against Inflation: Strong stocks can offer protection against inflation. As the cost of living rises, these companies can often pass on costs to consumers due to their strong market positions, which can lead to increased revenue and profits that outpace inflation.

How to Invest in Fundamentally Strong Stocks?

Considering investments in fundamentally strong stocks involves identifying companies known for financial stability, consistent earnings growth, and resilience to market fluctuations. Such stocks might be suited for those seeking potential long-term capital growth and reliable returns. Here are ways to effectively select and invest in fundamentally strong stocks in India.

• Characteristics of Fundamentally Strong Stocks: When exploring fundamentally strong stocks, one might look at companies with robust balance sheets, favourable debt-to-equity ratios, and continuous profitability. Analysing financial metrics such as the Price-to-Earnings (P/E) ratio, Return on Equity (ROE), and Profit Margin could help in understanding a company’s financial standing. It may also be worth considering companies with a history of sustained growth during various economic climates, though this is not a guaranteed indicator of future performance.

• In-Depth Research and Analysis: In-depth research and analysis are advisable for a thorough evaluation of potential investments. This could involve examining financial statements, such as balance sheets, income statements, and cash flow statements, to assess a company’s financial health and growth potential. An understanding of the broader industry trends, competitive landscape, and management quality might also be relevant. However, it’s important to remember that past performance and current market standings do not necessarily predict future results.

• Portfolio Diversification: While diversifying one’s investment portfolio across various sectors and industries could theoretically mitigate risk, it’s essential to remain aware of the inherent risks involved in stock investments. Regular monitoring and reevaluation of the investment portfolio might be prudent, but such actions require careful consideration of the potential impacts on financial stability.

• Adopting a Long-Term Perspective: Adopting a long-term perspective on investments in fundamentally strong stocks might seem advisable, yet it is crucial to maintain an awareness of how market volatilities and economic downturns can impact long-term investment returns. While patience and discipline might be beneficial, they should not overshadow the need for ongoing risk assessment and financial reassessment.

Who Can Invest in the Fundamental Strong Shares?

Fundamentally strong stocks can be suitable for various type of investors mentioned below:

• Risk-Averse Investors: Fundamentally strong stocks provide a relatively safer investment option for risk-averse investors looking to grow their wealth over the long term.
• Long-Term Investors: Investors with a time horizon of 3-5 years or more can benefit from investing in fundamentally strong stocks, as they have the potential to generate consistent returns over the long run.
• Dividend Seekers: Many fundamentally strong companies have a track record of paying regular dividends, making them attractive for investors seeking a steady income stream.
• Investors Focused on Quality: Investors who prioritise investing in high-quality companies with robust financials, strong management teams, and promising growth prospects should consider fundamentally strong stocks.
• Investors Seeking Stability: Fundamentally strong stocks tend to be more resilient during market downturns, providing stability to an investor’s portfolio.

Risks Associated With Investing in Fundamentally Strong Shares

Investing in fundamentally strong stocks, while generally secure, still carries certain risks:

• Valuation Risks: These stocks may sometimes be overvalued due to their perceived stability, leading investors to pay a premium that may not reflect the actual company performance.
• Lower Yield: Because of their stability and strong performance, fundamentally strong stocks often yield lower returns compared to high-risk, high-reward investments.
• Market Sentiment: Even strong fundamentals can be overshadowed by negative market sentiment, affecting stock performance regardless of the company’s actual health.
• Opportunity Costs: By choosing to invest in these stable stocks, investors might miss out on higher returns from more volatile or speculative assets.
• Regulatory Changes: Changes in regulations can have adverse effects, even on stable sectors and the strongest companies within them.

Factors to Consider Before Investing in the Best Fundamentally Strong Stocks

Before investing in the best fundamentally strong stocks, there are several factors to consider. Here are some key points to keep in mind:

• Debt-to-Equity Ratio: The debt-to-equity ratio is a crucial metric to evaluate the financial health of a company. A high debt-to-equity ratio can indicate a higher risk of default, while a low ratio suggests a stronger financial position.
• Return on Equity (ROE): ROE measures a company’s profitability by comparing its net income to shareholders’ equity. A higher ROE indicates better profitability and a stronger financial position.
• Dividend Yield: Dividend yield is the ratio of the annual dividend payment to the stock’s current price. A higher dividend yield can indicate a more attractive investment opportunity.
• Management Quality: The quality of management is critical in determining a company’s long-term success. Look for experienced and skilled management teams with a track record of delivering strong financial performance.
• Industry Analysis: Understanding the industry in which the company operates is essential. Analyse the industry’s growth prospects, competitive landscape, and regulatory environment to ensure the company is well-positioned for success. 
• Financial Statements: Review the company’s financial statements to gain insights into its financial performance, including revenue growth, profitability, and cash flow.

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To Wrap It Up…

In conclusion, investing in fundamentally strong stocks is a one-way to go about building a safe investment portfolio. By focusing on factors like stable earnings growth, strong balance sheets, and competitive advantages, investors can potentially achieve long-term success. By conducting thorough research and analysis, investors can make informed decisions and build a strong portfolio.

Frequently Asked Questions on Fundamentally Strong Stocks