Market dominance is a key factor for any company to stand out. You must have noticed that even though multiple companies offer the same products and services, only a few rule the market. This gives an interesting opportunity to the investors to earn some good profits. However, investing in monopoly stocks requires a lot of homework and knowledge about the industry and the business itself.
In this article, you will read about how monopoly stocks work, the top 10 for investing in 2024, factors to consider while picking these stocks, and more.
Top 10 Monopoly Shares in India
Here is the list of India’s top 10 monopoly stocks per market capitalization as of January 5, 2024.
| Stocks | Industry/ sector | Market Cap as on 5 January (Rs. Cr.) |
|---|---|---|
| ITC | Diversified FMCG | 591,219.09 |
| Titan | Gems, Jewellery, & watches | 329,373.10 |
| Coal India | Oil & Gas | 236,864.46 |
| Hindustan Aeronautics Ltd. | Aerospace & Defense | 200,568.97 |
| Pidilite | Speciality Chemicals | 138,435.83 |
| Hindustan Zinc | Metals & Mining (Zinc) | 134,534.16 |
| IRCTC | Tour, Travel Related Services | 72,492.00 |
| BHEL | Heavy electrical equipment | 68,187.80 |
| CCI | Logistic solutions | 54,586.68 |
| IEX | Exchange and Data Platform | 14,747.17 |
Understanding Monopoly Stocks
When a company has no or very negligible competition, which helps the business rule the market, it can be referred to as a Monopoly business, and the company stocks as monopoly stocks.
This edge over others is often gained with strict barriers to entry into a market. For instance, a company cannot suddenly start petroleum mining or production instead of producing petroleum jelly. There can be different restrictions, such as government policies, availability of capital, geographical challenges, and others, which can bar the entry of new companies into a market. It helps existing company/s expand and have a monopoly.
Apart from entry into a market, monopolies develop when a company enjoys economies of scale and offers its products at low rates. It can also be a trendy brand where the expensiveness of the product makes it a better choice, and customers don’t give it up due to a perceived status symbol or brand fascination.
Thus, there are different ways a company becomes a monopoly, but whatever it may be, investors often benefit due to the monopoly status of a business. While the above companies are the top monopolies in the country at present, it is not for all the products and services they offer. For instance, ITC deals in diversified FMCG products, but its monopoly is in the tobacco or cigarette market.
Similarly, Titan is known for its watches. Still, its primary revenue comes from the jewelry business, and it holds a monopoly in the Indian market when it comes to the jewelry business.
Coal India has a monopoly in the oil & gas sector, but its product is consumable coal fuel. In Pidilite, not all the company’s products have a monopoly market. It is only Fevicol that has a monopoly in the adhesive market.
IRCTC enjoys a monopoly market regarding catering services in Indian Railways, selling packaged drinking water and online ticketing services as the Indian Railways have granted the company exclusive permission.
Factors to Consider Before Investing in Monopoly Companies Stock in India
While monopoly stocks can offer great investment opportunities, picking the right monopoly stock is the key. Here are some factors investors need to consider while choosing these stocks.
- Comparatively Less Competition: The essential feature of any monopoly stock would be fewer competitors. Therefore, while picking these stocks, you need to find and analyze whether there are many players in the market for the same product and services. If there are many competitors of a company, and having similar market presence, then it cannot be considered as a monopoly stock.
- Could Be Difficult to Develop or Sustain: Monopoly businesses do not mean sustainability or perpetual development. If a monopoly business is dependent on a resource, which is limited, then the business can shut down once the resource is exhausted. Thus, you need to choose monopoly stocks, which have the potential for further growth even if they grow slower.
- Linked to a Greater Risk: Monopoly businesses often possess greater risk factors due to autonomy. Since monopoly businesses can often control the price in the market they operate, sudden hikes in price or charging very low prices can affect a business’s goodwill and lead to losses. You must see whether the monopoly company adheres to consumer protection and antitrust laws.
- Investing in Companies with Strong Moats May Be a Smart Move: When you invest in a monopoly company, find the strong moats of the business. This includes competitive advantages such as patents, rights, licenses, brand value, etc.
- Resist Industries with Heavy Government Intervention: While monopoly businesses are to some extent dependent on government regulations, for instance, private players are not allowed in defense sector businesses, but again anything in excess spoils the game. So, when investing in monopoly stocks, ensure government intervention is limited.
Financial Metrics to look for while choosing Monopoly Stocks
Here are some of the primary financial metrics you can use to evaluate and pick the monopoly stocks in India.
- Return on Equity (ROE): It all boils down to the returns for investors, right? Thus, the first thing you must check when investing in monopoly stock is the return it generates. Calculate or check the ROE of the company before digging into other details.
- Debt-to-equity Ratio (D/E): Monopolies often use their brand value or goodwill to leverage out, which can increase their debt and, thus, the ratio. However, you must compare if the ratio is at par with the industry average and if the company benefits from the debt.
- Market Share: To invest in the right monopoly stock, you must check and compare the company’s market share or capitalization.
Conclusion
Monopoly stocks are mature companies with strong customer base and goodwill. Investing in them means a long-term game. You cannot expect overnight profits however, if you can pick the right monopoly stock, then you can generate generous returns over the long term.
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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.