Picking the best-performing stocks can be a game-changer. However, how can you accurately pick these stocks? Well, it is possible by using fundamental and technical analysis to identify stocks with high potential. In this article, we will reveal some secrets behind experts’ selection of top Sensex stocks, giving invaluable insights to help you make better decisions.

Understanding the Sensex

The Sensex, also known as the BSE Sensex, represents the most popular stock market index of 30 companies listed on the Bombay Stock Exchange (BSE).

Today, the Sensex includes some of the largest and most actively traded companies in India. The S&P BSE Index Committee selects these companies based on five criteria:

• They must be listed on the Bombay Stock Exchange.

• They should be large or mega-cap stocks.

• They need to be relatively liquid.

• They must generate earnings from their core business activities.

• They should contribute to maintaining a balanced representation of the country's equity market.

Since its liberalization in the 1990s, the Sensex has experienced rapid growth, particularly after 2000, driven largely by the boom in information technology companies. Market participants closely watch changes in Sensex stock price which is around 79000+ at present, to understand market sentiments and make appropriate decisions.

How the Pros Select Top-Performing Stocks?

Professionals use various methods to select top-performing stocks in the Sensex. Here’s a summary of their approach:

1. Fundamental Analysis

In fundamental analysis, professionals look at a company's financial health to pick good stocks. They review financial statements like the balance sheet and income statement. Key factors include:

• Earnings Per Share (EPS): This is a measure of the amount of earnings on a per-share basis.

• Price-to-Earnings (P/E) Ratio: The stock price compared to its earnings, showing if it's cheap or expensive.

• Return on Equity (ROE): How well the company uses shareholder money to make profits.

• Debt-to-Equity Ratio: How much debt the company has in relation to its equity.

These indicators help assess if a stock is a good trade. They decide if a stock is undervalued or overvalued by evaluating these parameters, thereby making informed trading choices.

2. Technical Analysis

Technical analysis is a method used by professionals to evaluate and predict stock price movements by analyzing historical price and volume data. This approach relies on identifying patterns and trends in the market using various tools and indicators.

Commonly used tools include moving averages, which smooth out price data to identify trends; the relative strength index (RSI), which measures the speed and change of price movements to identify overbought or oversold conditions; and Bollinger Bands, which provide a range within which the price is expected to move.

You can also use a stock screener in which you only have to choose the indicators, and it filters stock options for you.

3. Economic and Market Conditions

Professionals consider economic and market conditions when selecting stocks. They look at factors like GDP growth, which shows how well the economy is doing, and interest rates, which affect borrowing costs for companies.

Additionally, they assess market sentiment—how traders feel about the market overall. If the economy is growing, interest rates are low, and inflation is under control, it often means a better environment for stock performance.

Understanding these conditions helps professionals predict which stocks might do well in the future.

4. Company Performance

In selecting top-performing stocks, professionals look closely at a company's performance. They check if the company is making money and growing its revenue.

They also evaluate how efficiently the company is using its resources and managing costs. Important factors include profitability (how much money is left after expenses), revenue growth (how sales are increasing), and competitive strength (how well the company performs compared to others). They also assess the quality of the company's management.

A company with strong performance metrics and effective leadership is more likely to be a good trade.

5. Sector and Industry Analysis

In sector and industry analysis, professionals look at different sectors (like technology or healthcare) to find which ones are growing or facing challenges.

They analyze trends, such as new technologies or changes in consumer behavior, to see which sectors are likely to perform well. Within these sectors, they choose stocks of companies that are leading or showing strong potential.

For example, if technology is booming and a company is a top player in that sector, it might be an attractive investment option. This helps professionals select stocks from industries with promising growth prospects.

6. News and Events

Professionals pay close attention to news and events because they can significantly affect stock prices. For example, if a company releases strong earnings reports or announces a major new product, its stock might rise.

On the other hand, negative news, like regulatory issues or economic downturns, can cause stocks to fall. By staying updated on current events and understanding how they impact the market, professionals can make informed decisions about which stocks to buy or sell.

This helps them react quickly to changes and adjust their trading strategies accordingly.

Conclusion

Professionals use a mix of metrics, technical tools, and qualitative factors to choose top-performing Sensex stocks. Key indicators like EPS and P/E ratios, along with tools such as moving averages and RSI, help in identifying strong trading opportunities.

Combining these methods with an understanding of industry trends and company management can help in picking the stocks with high performance.