The year 2023 is expected to be a promising one for the Indian stock market, as the economy recovers from the impact of the Covid-19 pandemic and the vaccination drive reaches more people. However, not all stocks are equally attractive for investors who are looking for long-term growth and stability. In this blog post, we will discuss some of the Indian stocks that have good strong fundamentals and are likely to perform well in 2023 and beyond.
What are good strong fundamentals?
Fundamentals are the financial and operational aspects of a company that determine its value and growth potential. Some of the key indicators of good strong fundamentals are:
- Revenue and earnings growth: A company that can consistently increase its sales and profits over time is likely to have a competitive advantage and a loyal customer base. Revenue and earnings growth also reflect the demand for the company’s products or services and its ability to innovate and adapt to changing market conditions.
- Return on equity (ROE): ROE measures how efficiently a company uses its shareholders’ equity to generate profits. A high ROE indicates that a company is creating value for its shareholders and has a sustainable business model.
- Debt-to-equity ratio: This ratio compares a company’s total debt to its total equity. A low debt-to-equity ratio implies that a company has a strong balance sheet and can manage its debt obligations without compromising its growth prospects.
- Free cash flow (FCF): FCF is the amount of cash that a company generates from its operations after deducting capital expenditures. A positive FCF indicates that a company has enough cash to fund its growth initiatives, pay dividends, buy back shares, or reduce debt.
In this blog post, we will look at some of the Indian stocks with good strong fundamentals in 2023. These stocks are selected based on their past performance, future prospects, valuation and industry outlook. We will also provide some key financial ratios and metrics to help you evaluate these stocks better. Please note that this is not a recommendation or advice to buy or sell any stock, but only an informational and educational article.
Which Indian stocks have good strong fundamentals in 2023?
Based on these criteria, here are some of the Indian stocks that have good strong fundamentals and are expected to deliver superior returns in 2023:
- Reliance Industries Ltd (RIL): RIL is India’s largest private sector company by market capitalization and revenue. It operates in diverse sectors such as oil and gas, petrochemicals, telecom, retail, digital services, media, and entertainment. RIL has been investing heavily in its digital and consumer businesses, which have shown robust growth amid the pandemic. RIL’s telecom arm Jio Platforms has become India’s largest mobile network operator with over 400 million subscribers and has also entered into strategic partnerships with global tech giants such as Facebook, Google, Microsoft, and Intel. RIL’s retail arm Reliance Retail has acquired several online and offline players such as Future Group, Netmeds, Urban Ladder, Zivame, and Hamleys to expand its presence across segments such as grocery, fashion, pharmacy, furniture, and toys. RIL’s oil-to-chemicals (O2C) business is also undergoing a major transformation as it plans to spin off into a separate entity and attract foreign investors. RIL has reported a revenue growth of 10.3% year-on-year (YoY) and an earnings growth of 108.4% YoY in the quarter ended December 2020. Its ROE was 11.5%, debt-to-equity ratio was 0.6, and FCF was Rs 23,566 crore in the same period.
- HDFC Bank Ltd (HDFCBANK): HDFC Bank is India’s largest private sector bank by assets and market capitalization. It offers a wide range of banking and financial services to retail, corporate, and institutional customers across India and overseas. HDFC Bank has maintained its leadership position in the banking sector by leveraging its strong brand image, customer loyalty, digital innovation, diversified product portfolio, and prudent risk management. HDFC Bank has reported a revenue growth of 15% YoY and an earnings growth of 18% YoY in the quarter ended December 2020. Its ROE was 16.1%, debt-to-equity ratio was 6.7, and FCF was Rs 15,841 crore in the same period.
- Infosys Ltd (INFY) is one of the leading IT services providers in India and the world. The company offers a range of services and solutions to help its clients achieve their business goals and digital transformation objectives. Infosys has a strong presence in various sectors such as banking, financial services, insurance, retail, manufacturing, healthcare, energy, utilities, communications, media, and entertainment. Infosys also has a diversified geographic footprint, with operations in over 50 countries and more than 250,000 employees. One of the key drivers of Infosys’s growth and success is its focus on innovation and emerging technologies. Infosys has invested heavily in developing capabilities and offerings in areas such as cloud computing, data analytics, artificial intelligence (AI), automation, cybersecurity, blockchain, internet of things (IoT), and 5G. These technologies enable Infosys to deliver faster, smarter, and more scalable solutions to its clients and enhance their customer experience, operational efficiency, and competitive advantage.
Infosys has also demonstrated its ability to win large and strategic deals from global clients across various industries. Some of the recent examples include:
- A multi-year partnership with Vanguard, one of the world’s largest investment management companies, to provide digital transformation services for its defined contribution retirement plan business.
- A collaboration with Daimler AG, a leading automotive manufacturer, to transform its IT infrastructure and workplace services into a cloud-based model.
- A long-term contract with Rolls-Royce, a leading aerospace and defense company, to provide engineering and digital services for its civil aerospace business.
- A strategic partnership with Metro AG, a leading wholesale and food retail company, to accelerate its digital transformation journey and optimize its IT operations.
- A multi-year agreement with LivePerson Inc., a global leader in conversational AI solutions, to offer chatbot and voice-based solutions to its clients.
These deals reflect Infosys’s strong capabilities and reputation in the IT services market and its ability to deliver value-added solutions to its clients. Infosys expects to continue to leverage its expertise and experience in digital technologies to capture new opportunities and grow its revenue and profitability in the future.
- TCS (Tata Consultancy Services): TCS is India’s largest IT services company and one of the world’s leading providers of digital solutions. It has a diversified portfolio of services across various domains, such as banking and financial services, retail and consumer goods, manufacturing, healthcare, energy, and telecom. It has a global presence in over 50 countries and serves more than 2,000 clients. TCS has been consistently delivering strong revenue and profit growth over the years, driven by its robust execution capabilities, innovation-led offerings, large deal wins, and client retention. It has also maintained a healthy operating margin of around 26%, which is among the highest in the industry. It has a strong balance sheet with zero debt and a high cash reserve of over Rs 50,000 crore. It also rewards its shareholders with regular dividends and buybacks. TCS is well-positioned to benefit from the increasing demand for digital transformation and cloud services in the post-pandemic era. It has invested heavily in building capabilities in emerging technologies such as artificial intelligence (AI), machine learning (ML), internet of things (IoT), blockchain, cloud computing, and cybersecurity. It has also launched new platforms and solutions to cater to specific needs of various sectors and segments. TCS is currently trading at a price-to-earnings (PE) ratio of around 35x, which is slightly higher than its historical average of around 30x. However, given its superior growth prospects, quality management, and resilient business model, it deserves a premium valuation. Analysts expect TCS to grow its earnings by around 15% annually over the next three years. The consensus target price for TCS is Rs 4,200 per share, which implies a potential upside of around 15% from its current price of Rs 3,650 per share.
- Nestlé India Ltd: Nestlé India is a subsidiary of Nestlé SA, the world’s largest food and beverage company. Nestlé India manufactures and markets a wide range of products, such as milk and nutrition, beverages, prepared dishes and cooking aids, chocolates and confectionery, coffee and tea. Some of its popular brands include Nescafé, Maggi, KitKat, Munch, Milkybar, Nestea, NesPlus and Nestum. Nestlé India has a strong distribution network, covering over 4.6 million outlets across the country. Nestlé India has a dominant market share in many of its product categories, such as instant noodles, infant nutrition, coffee and chocolate. Nestlé India has a loyal consumer base, a strong brand equity, a focus on innovation and quality, and a resilient business model.
- Some of the key financial ratios and metrics of Nestlé India are:
- Revenue growth (5-year CAGR): 8.7%
- Net income growth (5-year CAGR): 14%
- Return on equity (5-year average): 63.4%
- Operating margin (5-year average): 25.9%
- Dividend payout ratio (FY 2022): 59%
- Divi’s Laboratories Ltd: Divi’s Laboratories is one of the leading manufacturers of active pharmaceutical ingredients (APIs) and intermediates for generic drugs in India. It also provides contract research and manufacturing services (CRAMS) to global pharmaceutical companies. Divi’s Laboratories has four manufacturing facilities in India, with a total capacity of over 13,000 metric tons per annum. Divi’s Laboratories exports its products to over 95 countries across North America, Europe, Asia-Pacific and Latin America. Divi’s Laboratories has a diversified product portfolio, catering to various therapeutic segments such as anti-inflammatory, anti-diabetic, anti-hypertensive, anti-viral, anti-fungal and anti-cancer. Divi’s Laboratories has a strong research and development capability, a high-quality compliance record, a cost-efficient production process and a robust cash flow generation.
Some of the key financial ratios and metrics of Divi’s Laboratories are:
- Revenue growth (5-year CAGR): 16%
- Net income growth (5-year CAGR): 19%
- Return on equity (5-year average): 22%
- Operating margin (5-year average): 37.2%
- Dividend payout ratio (FY 2022): 18%
- Titan Company Ltd is a Tata group company that operates in the consumer durables sector, mainly in jewellery, watches, eyewear, and accessories.
Some of the key financial ratios and metrics of Titan Company Ltd are:
- Price to earnings ratio: This ratio measures how much investors are willing to pay for each rupee of earnings. As of Q3 2022, Titan’s PE ratio was 76.12, which indicates a high valuation compared to its peers and the industry average.
- Price to sales ratio: This ratio measures how much investors are willing to pay for each rupee of sales. As of Q3 2022, Titan’s PS ratio was 6.07, which also indicates a high valuation compared to its peers and the industry average.
- Enterprise value to EBITDA ratio: This ratio measures how much it would cost to buy the entire company, including its debt and cash. As of Q3 2022, Titan’s EV/EBITDA ratio was 50.69, which suggests that the company is highly leveraged and has a low cash flow relative to its enterprise value.
- Return on equity: This ratio measures how much profit the company generates for its shareholders. As of Q3 2022, Titan’s ROE was 34.77%, which indicates a high profitability and efficiency compared to its peers and the industry average.
- Inventory turnover: This ratio measures how many times the company sells and replaces its inventory in a given period. As of Q3 2022, Titan’s inventory turnover was 2.27, which indicates a high inventory management and sales performance compared to its peers and the industry average.
- Source: TradingView, MoneyWorks4Me, Smart Investing