In my article about list of forever stocks many readers wanted to know the reason for selecting those stocks. So let me not only clarify the reason for selecting those stocks but also share my criteria for selecting the stocks as well.
Criteria for selecting Forever Stocks
If you are following my blog for last few months you may be aware that I am not been very bullish. If you missed you can read my post Signals of Market Crash later.
To create the list of forever stocks I used a very simple logic of sector eradication which I am going to share here.
Let us divide the world markets into 2 parts. First those countries that have issues with maintaining growth and the second one are those that have growth going forward but have concerns related to inflation. India falls into the second category and so issues here in India is related to inflation.
RBI is trying to bring down inflation by controlling liquidity. The problem is never the liquidity but RBI has very little option when it comes to controlling inflation and all it can do is control liquidity and this in turn is actually not helping control the inflation but is also hurting the growth because of high interest scenarios going forward.
So India has problems with high interest rates. Interest sensitive sectors like Banks and Real Estate companies go out of my forever stocks. [Reason SBI could not make to my list of forever stock.]
We have just seen the recession in 2008 and in couple of years time everyone was and is talking about the new growth platforms. What this actually did was (and is) – Everybody is now wanting to catch on the future growth and don’t want to miss out. This made the equity markets and commodity prices soar very quickly in last couple of years and we again fear yet another recession. I am not the right person to predict we will go into recession or not but the scenario is making everyone uncomfortable.
If another recession is considered you should keep yourself away from sectors like heavy industries and Infrastructure. [Reason BHEL, L&T could not make it to my list].
So I considered stocks that have mix of Good Indian demand story in sectors excluded by above scenarios.
Why for each of my Forever stocks
- Nestle India – Food giant which has shown very good results for last 18 quarters. That speaks for itself.
- Asian Paints / HiTech Plast – India growth story but yes OIL prices can have an impact on the stock.
- Infosys – Can benefit heavily because of Forex movement.
- Coal India – Demand of Coal always on the rise but dampening coal prices can have an impact on the performance of the stock.
- VIP Industries – Indian demand story.
- Lovable Lingerie – Unique player with good Indian demand story.
- Hero Motocorp – Company has come out with flying colors in Honda deal.
- CRISIL – Always buy and forget stock.
- Havells India – Indian demand story.
- Titan Industries – Indian demand story.
I wish I could add more Forever Stocks?
The list is for my investing and so it is never complete. I wish I could add few more companies from Pharma sectors as well but they could not make my list of top 10 stocks. May be I could have added them in top 15. You never know.
I hope this clarifies all the doubt. Share your views in comments below.