Best Large Cap Stocks To Invest In The Indian Share Market

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Stocks are often categorized based on their market capitalization as large-cap, mid-cap, and small-cap stocks. The large-cap category consists of well-established businesses with a significant market share. These companies have a market share of Rs. 20,000 crore or more. As per the Securities and Exchange Board of India (SEBI), the list of large-cap companies includes 1st to 100th companies in terms of market capitalization.

The leading market indices of the Indian Share Market like the NIFTY 50 and the BSE SENSEX comprise large-cap stocks only.

Why Invest in Large-Cap Stocks?

Large-cap stocks generate steady revenues. They are the market leaders in their segment and at the peak of their business cycle.

These blue-chip companies can be a valuable addition to your investment basket. Including large-cap stocks in your portfolio offers some advantages. We discuss a few of them below.

Transparency

Usually, large-cap companies have been operational for a long time. You can access sufficient information about their performance over the years. Information availability can help you get helpful insights into the stock for your decision-making.

  1. Lower Risk

Investment in the stock market can never be risk-free. However, investment in large-cap stocks is less risky compared to mid-cap and small-cap companies.

  1. Stability

Another advantage of large-cap stocks is stability. Though not immune to market volatility, they are good for long-term investment.

  1. Dividends

Large-cap companies pay regular dividends to investors. They are a good choice if you are looking for additional income. The steady payouts help you compensate for the lower returns offered by small-cap companies.

  1. Management

The success of any company depends on its management. Large-cap companies have experienced leaders from the industry on their boards. They hire talented and qualified people from premier institutes or within the industry to run the company.

The presence of talented people at the helm of affairs gives investors confidence and ensures long-term growth for the company.

Importance of Market Capitalization For Portfolio Planning

All your investments combined comprise your portfolio. Have a well-balanced portfolio with different asset classes. Diversify your investments across industry types and segments.

Market capitalization can play a significant role in planning your portfolio. Companies of different sizes perform well during various phases of the market cycle. When mid or small-cap companies are not doing well, large-cap companies continue to provide steady returns and stability to your portfolio.

Few Aspects To Remember

  • When you invest in large-stock companies, bear in mind that they offer lower capital appreciation, and the choice is limited as few companies fall in this category.
  • Large-cap stocks are generally the first to rally during cyclic market fluctuations, which gives individual and institutional investors greater confidence.
  • A good mix of large, medium and small stocks is ideal for stable returns.
  • When you pick large-cap stocks or any investment product, keep your financial goals and risk appetite in mind.
  • Do not follow any market trend or tip blindly. Always research well and base your decision on it.

Below we discuss one such renowned brand and a large-cap stock.

ITC: An Overview

ITC is one of the most well-known and trusted private sector names in the Indian share market. The company, headquartered in Kolkata and established in 1910, is a conglomerate with businesses ranging from FMCG, cigarettes, branded clothes, stationery, hotels, paper boards, agri-business, and information technology. It is among the top FMCG brands in India.

The company operates across four segments; FMCG (fast-moving consumer goods), Hotels, Paperboards, Paper and Packaging, and Agri-Business.

The FMCG segment comprises Cigarettes and Others (branded packaged foods businesses including snacks, staples and meals, dairy, beverages, cakes, biscuits, coffee, chocolates, education and stationery products, personal care products, agarbattis, safety matches, and apparel).

Its Agri-Business segment comprises Agri commodities such as soya, coffee, spices, and leaf tobacco.

Other segments include information technology services and branded residences.

Some brands owned by ITC are household names in India. The list includes YiPPee!, Sunfeast, B Natural, Sunbean, Ashirvaad, Bingo!, Aim, Candyman, Fiama, Classmate, Engage, Mangaldeep and Homelite.

ITC’s Share price as of 16th May 2022 is Rs 254.85. The table below gives a Peer Comparison based on certain parameters.

PE 21.62 Rank 1
EPS 12.02 Rank 1
Dividend Yield 4.92% Rank 1
ROE 21.18% Rank 1
Debt To Asset 0.18% Rank 1
Price To Book Ratio 5.3 Rank 1

 

The table below gives key financial ratios and numbers for the last three years.

  FY 2021 FY 2020 FY 2019
Return on Capital Employed (%) 28.49 29.80 31.04
Return on Assets (%) 17.82 19.78 17.53
Asset Turnover (X) 66.74 63.85 67.34
Price to Earnings (X) 20.45 13.83 28.90
Price to Book (X) 4.46 3.24 6.15
EV/EBITDA (x) 13.48 9.36 17.49

Conclusion

You should invest in equity after a clear understanding of the risks associated with it and only if it aligns with your financial goals and risk appetite. Large-cap stocks offer low-risk and low returns; they can add stability to your portfolio. Assess your requirements well and have a good mix of different products across different asset classes and market capitalization in your portfolio.

Read Also: How to choose a right accountant?

 

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