How to select an Stock for investment?

As you are a layman in terms of investing i would recommend you to go for Long-term investment instead of high risk short-term investment. Lets see the step by step process to select a stock for long term (it may look a very basic procedure but trust me it is very good way to start learning investment in stock market). 

1. Read as much as you can about stock market. Start with Finance page of your newspaper. When you start feeling comfortable go for Wall Street Journal and other International papers. Our stock markets are heavily influenced by US markets so it would be beneficial to keep an eye on their market conditions. Remember there is no substitute/shortcut for knowledge and knowledge always pay in stock market.
2. Start with high dividend paying companies -   As we are playing for long term we will seek companies that have good record of paying dividends. You can easily get this information  online. Make a list of companies that have given good dividends past 20-25 years. Below is dividend payed by SBI in past five years (source: moneycontrol[dot]com)                                                                                                                                                           
   
                                                                                                                                              
3. Shortlist companies from above list - From the list you made, shortlist companies that have shown constantly rising revenue and earnings. Again this information is freely available on internet. Companies that have good track record attract more investors and have high chance of growth in future. Remember it is not guaranteed that a company that have given good returns in past may be profitable to you but it has high chances as compared to others.
4. Check the balance sheets-  This habit should be developed in starting. The assets should be more than liabilities. If assets are capable of covering long term liabilities then it is an added advantage. Debt should be less. Check for debt equity ratio it should be less than 1. following is balance sheet of reliance as available on reddif[dot]com -                                                       
   
   
   
5. Check other indicators- Check for other indicators like Earning per share, It is a good indicator for investment. Two companies can generate same EPS but one with less equity (investment)- this company will be better. So look out for such companies. Also many times companies manipulate these earnings so you should take care of that also. For eg. if operating cash flow per share is less than reported EPS then it means company is generating less cash than EPS shown. So knowledge will always help you in deciding right stock.                                                                                         Next thing is P/E ratio. It is most common valuation tool used by analysts. It is generally in range of 20-25. It can be used to estimate earnings. Also you can use it to compare companies within the same segment. You can also compare the company's current scenario with its past using historic P/E data. 
6. Short Ratio is another important tool to get the sentiment about a share in stock market.                                                                                          
7. Growth Ratio is another term which decide valuation of a company. A higher growth ratio is always favorable. It is difficult to explain these terms here in detail but you should have basic knowledge of these terms.                          
8. Read Company reports- Companies have quarterly-annual plans. Read about them. You will get to know what company is planning. If a company talks about expansion and it has enough cash to do so then it may be a hot pick. So by reading reports you can make how company will do in future and thus you can make your decisions according to that.                                   
9. Look charts for buying indication- Selection of stock is one thing and buying it is another. You should look for buying indicators on chart. I am not telling you to go for a deep technical analysis but at least watch some resistance and support levels.  following is Microsoft chart with support and resistance levels.                                                                  
   
    

Once you start investing you can yourself evaluate your techniques by watching profits/loss. Nobody teaches you better than market. Before investing there are certain other small points that you should take care of like -

• Never invest all of your money at single go in a single company. It is always beneficial to diversify your portfolio and invest regularly instead of lump-sump investment. But don't include too many shares in your portfolio as it will be difficult to manage them.
• Always invest with your own money.Never invest money in stock market by taking loan from someone.
• Learn to book profits and prevent losses. You should always use stop loss to prevent losses and at same time you should also set your targets.
• Never go for hot tips etc. if they are so good then why they are not investing in market.