Diwali Muharat: Creating Watchlist is Important & 1st Step Towards Real Investment

You are an investor and you wish to build a portfolio of investments that will meet your expectations of returns with a level of risk that matches your risk appetite. However, you are not sure how to go about the task of constructing your portfolio and what to look for while selecting various investment avenues and asset classes. Such confusion can be problematic. In today’s article, we will look at the process (stages or steps) on how to build/create a watch list to identify highly profitable stocks for the future (or 2023) which can be initiated (take the first step) during ‘Muhurat Trading’ on Diwali, on October 24, Monday.

Let’s first understand why it is important:

The Indian stock market has been through a roller coaster ride so far in 2022. After registering a lifetime time in October 2021, the benchmark indices have consistently failed to touch a new all-time high. Infect to some extent the recent knee-jerk correction has created jitters amongst many long-term investors, Because they are desperate to figure out the exact time of stock market recovery.
– some of them are cautious and waiting to see when the next bull market will begin.
– Some investors are considering buying stocks in a big way with every knee-jerk correction
– some investors are keen to invest only if the markets correct some more.

To summarise most investors who are either buying stocks now or thinking of doing so in the near future, have a long-term horizon which is a good exercise for building a long-term portfolio or wealth management.

But before your real investment starts, you will also need to identify the best stocks (like a watchlist) which will actually be the first step towards investing in general.

So now lets us understand how to build a good watchlist (like a process or stages or steps)

A) Growth

First and foremost the Companies that maintain good sales and profit growth during a stock market downturn have always witnessed a strong rise in demand. Hence try to identify or check for good growth in the top line and bottom line. (Remember: the higher the better)

During a correcting phase, it is safe to assume that the market knows these stocks are essentially getting cheaper. This is pure because high growth increases per-share earnings at a faster pace in general. Hence at a certain point, a falling market makes these stocks attractively valued for FII and Institutional investors to start buying these stocks. It is purely a waiting game with high-growth stocks. Because If you invest too soon you may end up buying the stock before its valuation has corrected sufficiently. But if you are patient, the stock market will present you with a whopping golden opportunity to buy these stocks at a reasonably great price.

Remember; Unfortunately, these stocks also tend to be overvalued at the start of the correction, so they have more downside in terms of price correction. Add the list of fastest-growing companies as well as the top growth stocks in the market to your watchlist. if you search for the fastest-growing stocks in India then You’ll come across names of new-age tech companies, Zomato (NS:), Adani Green Energy (NS:), Tata Elxsi (NS:), and many more.

But again remember you need to be sure that growth is going to be profitable so for example you can use the following criteria to filter stocks:
– Strong growth sales in past
– Continuous and compounding profits over the last few years
– Debt to equity ratio equal to 0 is recommended
– High ROE.
– Recession Proof.

B) Past Track Record
It is said history has a tendency to repeat itself” or ‘sometimes it just rhymes”. As memory fades, events from the past can become events of the present. Some, like author William Strauss and historian Neil Howe, argue that this is due to the cyclical nature of history — history repeats itself and flows based on the generations.

Remember: The study of history is important because it tips you off when a rhyme is coming and gives you some idea of what that rhyme might be. Now you can take this knowledge, if you’re clever, you can make yourself a truckload of money in the stock market, invent the thing everyone doesn’t realize they’re going to need. So truly “History does not repeat itself, it is we who repeat it.”

Therefore it is important to look at past performance as a guiding tool because If a stock has been a multibagger in the past, it’s worth checking out if the price (bull run) was driven by fundamental reasons or by speculation or just a one-time thing. If the reason for the bull run was strong fundamentals, please remember that if the same fundamentals are still intact then you could have a multi-bagger stock in your hands for the future as well.

C) Dividends

You should always check the dividend payout even though a lot of investors in general do not give significant importance and the reason being: The fundamentally strongest companies have rock-solid cash flows. They often share this cash with investors as dividends. The best companies usually have a long track record of dividend payments.

In a stock market downturn, dividend-paying stocks are in high demand as investors prefer the safety of the cash flow that dividends provide over capital gains.
These stocks can also provide good dividend yields during a market crash. This is because they tend to fall initially along with the rest of the market. But as soon as their yields become attractive enough, investors jump in and buy them. Hence it will be safe to assume that high dividend-paying stocks at a certain point have some kind of in-built stop loss (in terms of price correction).
There are also excellent companies that raise their dividends every year. In these stocks, you get the benefit of capital appreciation as well as rising dividends. They are called dividend growth stocks.
If you are investing in such dividend stocks, you should investigate the company’s history of dividend payments and whether they could continue to make higher payouts
Among the many categories, midcap stocks usually have a higher growth potential to generate consistent cash flows.

Keeping such factors in mind, we found 10 dividend-paying midcaps which were ranked higher in 2022 so far and could be part of your future (or 2023) watchlist (Order is random)
1) Oracle Financial Services Software Ltd (NS:)
2) Bayer CropScience (NS:)
3) Bajaj Holdings and Investment
4) Hindustan Aeronautics (NS:)
5) Colgate (NS:)
6) Balkrishna Industries (NS:)
7) Supreme Industries (NS:)
8) Cummins India (NS:)
9) CRISIL (NS:)
10) Emami (NS:)

D) Debt 
it’s always a good idea to start with the debt levels of the company you are considering. Ideally, the company should have very little debt or should be debt free. Many fundamentally strong stocks have zero debt.
Also, it’s a good idea to look for companies that are actively reducing their debt. While they may have some debt today, they are unlikely to be badly affected by rising interest rates.

A random list of some of the debt-free companies in India
HUL
INFOSYS
IRCTC (NS:)
DIVIS LABORATORIES
ABB (NS:) INDIA
BHARAT ELECTRONICS
BAJAJ HOLDINGS & INVESTMENT
AVENUE SUPERMARTS
SCHAEFFLER INDIA
PAGE INDUSTRIES
SBI (NS:) LIFE INSURANCE
TCS (NS:) TATA ELXSI
SIEMENS
ITC
And many more 

E) Return On Equity
The return on equity is one of the best measures of a quality company.
If you follow the drill to filter out low ROE stocks, you will automatically get a list of stocks with high ROE.
A high return on equity along with low debt is a great combination to focus on when looking for stocks with the best fundamentals.
All great long-term stocks have good ROE. Just be sure to use it along with other stages or steps like high growth and low debt.

F) The X Factor: RP (Recession Proof)

There is no definition of recession-proof stocks or recession-proof businesses. But they are not hard to identify.
Usually, recession-proof stocks are found in specific sectors. These sectors do not see a big fall in demand in a recession. This is because their products and services tend to be ‘need based’ i.e. people and businesses have to buy them even during a recession. Broadly, these sectors are
Healthcare
Consumer staples/FMCG
Utilities
Discount retailers
Agriculture

Conclusion

A watchlist is exactly what it sounds like … a list of stocks you can watch. With most software, watchlists can show you data like percent change, bid and ask prices, open prices, and more. It might seem straightforward, but there’s a lot involved. Always try to keep your watchlist updated. Anyone can throw random stocks on a watchlist. But creating a relevant watchlist requires effort and knowledge. Avoid irrelevant stocks. Put the work in and create a watchlist that keeps you focused on the best setups for the future (or 2023) Investment journey.

Unless there is a quick and strong market recovery, short-term investors are unlikely to make a lot of money in the near future.
Thus being a long-term investor is the way to go. For example, In 2020 during covid lockdowns and while watching ipl T20 few of the students worked out a small 20-20-20 formula to filter the stocks and their portfolio has given handsome returns so far.

The first 20 means we need to filter stocks with minimum 20% sales growth,
Second 20 means companies profit margin has to be more than 20%
Third 20 means that company ROE has to be more than 20%

Please remember with proper discipline plus effort and with Such an in-depth watch list you will be already ahead of most investors in the stock market

Honestly, it won’t take you long to identify/filter the best stocks to be added to your watchlist for 2023 with proper practice and following the process that suits your investing goals.

Happy investing !!!

Disclaimer: The above article is for self-educational purposes. The research was conducted by the following students: G10, KJ, Chans, Dimpy, Vatsy, Deepsy, Yogeeta, Anantji, Jatin, and Kunal for learning purposes.

“Investing involves substantial risk. Neither the author nor the publisher, nor any of their respective affiliates make any guarantee or other promise as to any result that may be obtained from using the research/report. While past performance may be analyzed in the research, past performance should not be considered indicative of future performance. No reader should make any investment decision without first consulting his or her own personal financial and/or investment advisor and conducting his or her research and due diligence, including carefully considering whether it is suitable for your particular circumstances, as this research/report does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendation appropriate for you. In the event, any information, commentary, analysis, opinions, advice, and/or recommendations in the research/report prove to be inaccurate, incomplete, or unreliable or result in any investment or other losses, the author, the publisher, and their respective affiliates disclaim any and all liability to the maximum extent permitted by law.”