Checking whether a stock is good or bad isn’t just about its price or hype. It’s about digging deeper into its fundamentals, technicals, and future potential. Here’s a detailed breakdown of what to look for before putting your money into any Indian stock:
1. Check the Company’s Fundamentals
This is the foundation. Strong companies survive bear markets and thrive in bull runs.
- Revenue & Profit Growth: Look for consistent growth over the last 5–10 years.
- Debt-to-Equity Ratio: Lower is better; avoid highly leveraged companies.
- Return on Equity (ROE): Shows how well the company is using your money. A good ROE is above 15%.
- Earnings Per Share (EPS): Growing EPS means increasing profitability.
- Free Cash Flow: Positive and growing cash flow is a green signal.
Example: Companies like HDFC Bank, TCS, and Asian Paints score well here.
2. Analyze Technical Indicators (For Short-Term and Entry/Exit)
Fundamentals tell what to buy. Technicals tell when to buy.
- Trendlines & Moving Averages: Is the stock in an uptrend? 50DMA and 200DMA crossovers are crucial.
- Relative Strength Index (RSI): RSI between 30–70 is a healthy range. Avoid overbought (above 70).
- Volume: Rising volume with price indicates strong buying interest.
Bonus Tip: Use tools like TradingView or MoneyControl charts for quick technical checks.
3. Understand the Business and Sector
If you don’t understand what the company does, think twice before investing.
- Is the company a market leader?
- Is the sector growing (e.g., EV, Data Centers, Renewable Energy)?
- Does it have a competitive advantage (patents, brand loyalty, monopoly)?
Example: CAMS dominates mutual fund RTA services. CDSL leads in depository services.
4. Check the Management & Governance
Bad management can sink even a profitable business.
- Look for transparency in annual reports.
- Consistent dividend-paying history is a good sign.
- Avoid companies with regulatory issues or sudden resignations of key personnel.
5. Future Potential & Moat
A good stock has a “moat” — a sustainable competitive advantage.
- Does the company have pricing power?
- Is it part of a futuristic industry (AI, Green Energy, Fintech)?
- How is it adapting to disruption?
6. Red Flags – Signs of a Bad Stock
- Pump-and-dump schemes (sudden spike in low-volume stocks).
- Frequent equity dilution or bonus shares without strong reasons.
- Negative news, poor earnings consistently, or promoter selling stakes.
Conclusion:
A good stock is not the one that’s trending today. It’s the one that consistently grows, manages risk, and fits your financial goals. Always combine fundamental strength with technical timing before investing.
