Six Different Types of Stock in Indian Market according to Peter Lynch

Six Different Types of Stock in Indian Market according to Peter Lynch. Peter Lynch is the renowned American investor and ex- manager of Magellan fund at Fidelity investment. He is famous for his averaged 29.2% annual return for the duration of 13 years. The prodigal mutual fund manager divided the stocks in six categories during his investment experience. Namely: slow growers, stalwarts, fast growers, cyclicals, asset plays and turnarounds.

We are also going to follow lynch’s path.  Here are the categories with the examples of stocks from Indian markets so that they are easier to understand.

Six Different Types of Stock in Indian Market according to Peter Lynch:

  1. Slow growers / Sluggards

Slow growers, which originally once were fast growers, can be identified easily with a slow growth rate i.e. a low upward slope of earnings growth and stock price. The growth is usually between 2-5%. They can also be identified by the size and generosity of their dividend.

Peter Lynch did not like to spend time on these ‘sluggards’ and his portfolio consisted of very less percentage with slow growers. According to him, the only reason to buy these stocks is their dividends. They generally give a very good dividend (about 7-10%) and are good asset during recession as its very unlikely for their stock to feel too hard.

Example: Reliance, Power Grid Corp

  1. The stalwarts

They are the second type of categories from the Six Different Types of Stock in Indian Market according to Peter Lynch.

These stocks have average growth rate and are usually large companies that have earnings growth in the 10-12 percent range – higher than the slow growers.

According to Peter lynch, you can get a good return from these stocks if you wait for a long time. They generally end up from two-baggers (two times your buying price) to four baggers. It’s good to have few stalwarts in your portfolio.

Example: HPCL, Bajaj Auto, Mahindra & Mahindra

Best book for Stock Market Beginners- I will highly recommend to read ‘ONE UP ON THE WALL STREET’ by Peter Lynch to get good fundamental knowledge about stocks. It is available currently on best price at Amazon: One Up On Wall Street: How To Use What You Already Know To Make Money In the Market

  1. The fast growers

The fast growers are everyone’s first choice. There stocks are generally small aggressive new enterprises and they grow at an impressive rate of 20-25% per year. But one should be open-eyed when they own a fast grower. There is a great likelihood for the fast growers to get hammered if they run out of steam and become a slow grower.

Peter lynch’s portfolio consisted mainly of the fast growers. He looks for fast growers with good balance sheets and which have good profitability. This category is also the lynch’s favourite among the Six Different Types of Stock in Indian Market according to Peter Lynch

Example: MRF, Eicher Motors, axis bank, Infosys, Maruti

  1. The Cyclicals

The cyclicals can be distinguished from the fast growers as the cyclical keep on expanding and contracting and again repeating the same cycle (while the fast growers keep on expanding). They tend to flourish when coming out of a recession into a vigorous economy.

Automobiles, Metals, Chemicals, Tyres etc are the examples of the cyclical. Their charts tend to be very up and down over time. It is advised to owning the cyclicals only on the right part of the cycle.  That is when they are expanding. Sometimes, it even takes them years before they perform. Timing is everything and you need to be able to detect the early signs that business is falling off or picking up.

Example: GAIL, Coal India, SBI

  1. The turnarounds

The turnarounds are identified by Lynch as ‘no growers’ rather than ‘slow growers’. They are potential fatalities that have been badly hammered by the market for one or more of a variety of reasons. But they can make up lost ground very quickly.

Peter lynch identifies different types of turnarounds in his book ‘One up on the Wall Street’ and admits to being burnt by a number of them, but suggests that the occasional success can be exciting and rewarding.

Example: Tata Steel, Phoenix mills

  1. The Asset Plays

This is the last category from the Six Different Types of Stock in Indian Market according to Peter Lynch.

The asset plays are those stocks whose stocks are greatly undervalued and those stocks that have assets overlooked by the market. These assets may be simply cash that the company is holding but which is not valued when there has been a general market downturn. The cash may be worth more than the market capitalization of the company.

Peter lynch understands the worth of the asset plays. He suggest to own few of these stocks in your portfolio as they are most likely to give you a good return in the future. The only significant thing in these stocks is to carefully find these stocks and right estimate for the worth of the assets. If you are able to do it, own that stock.

Example: Castrol India

Try it out yourself!

So, these are the six different types of Stock in Indian Market according to Peter Lynch. If you followed the post, you can also easily categorize any stock in the six types given above. So, go on, play around different stocks and classify them accordingly to above categories.

NOTE: Six Different Types of Stock in Indian Market according to Peter Lynch

We encourage our viewers to comment below with the name of stocks and their categories that they found. We will really appreciate it and it will be very beneficial for the other post viewers.

About Kritesh Abhishek 76 Articles
Hi, I am Kritesh. I'm 23, Electrical Engineer, Investor & Blogger. I have a passion for stocks and has spent my last 3 years learning, investing and educating people about stock market investing. And so, I delighted to share my learnings with you on this blog. #HappyInvesting

4 Comments

    • Yes, Ajanta Pharma goes to fast grower category. It’s price boomed 10 times within 4 years. Thanks for the comment Sabyasachi 🙂

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