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A methodical approach should start with building universe of stocks based on a filtration criterion followed by wholesome analysis on basis of which investment decisions are taken.


Investment decisions are to be governed by preset maximum and minimum exposure levels. A continuous monitoring is essential for successful management.

STEP 1 - Stock Screening

  • Filter all listed entities to create your universe.

  • Universe to be reviewed every quarter.

  • You should consider following Parameters  for generating your universe [All or combination of few based on objectives of your portfolio]

  • Sales  and / or profits: Minimum sales value or profit value [below which investment to be avoided]

  • Growth: Minimum average growth in sales and / or profits in last 3 to 5 years

  • Returns: Minimum average returns on capital employed in last 3 to 5 years

  • Margins: Minimum operating margins  [if  it is too low ,chances of entity going into red is higher]

  • Dividend: Minimum dividend yield and / or yardstick looking at dividend payout as a % of profits

  • Market capitalization: Define corpus allocation between low, medium & high market capitalization

  • Holdings: Promoter holdings, FII / institutional holdings, pledged shares  by promoters

  • Foreign exchange: net outflows or inflows [can have impact on profits with currency volatility]

  • Debt / Equity: trend of leverage levels in last 3 to 5 years and impact on future expansions [if any]

  • Liquidity –  Average daily turnover on the exchange [to decide minimum investment in liquid stocks]


STEP 2 – Where to invest?

  • You need to research your filtered set of stocks and dig out companies with higher prospects for rise in their prices vs. others

  • Evaluate  them on daily basis to gauge opportunities and invest in them considering many parameters including  but not limited to

  • Price Earnings Multiples chart over last 3 to 5 years. Also consider PE in comparison to book value. Comparison of PE with revenue and / or profit growth in recent few quarters.

  • Performances in recent few quarters.

  • Expectations of performance in next few quarters considering cyclical nature of business, capacity expansion, geographical expansion, change in trends or consumer demand, effect of monsoon, Government policies, currency fluctuations & so on.


STEP 3 – When & how much to invest?

  • You should have a balanced approach avoiding too much of concentration or too much of diversification is essential.

  • Your approach could be based on allocation on basis of sectors, market capitalization of entities or simply based on rules that define maximum or minimum investments in any specific company, industry or a business house.

  • The decisions on quantum depends on your liquidity parameters, return expectations & risk bearing capacities, and estimated tenure of portfolio engagement.

  • Decisions for purchasing stocks is to be based on many parameters including but not limited to following

  • Forecasted PE multiples for 1 or 2 year time frames [based on forecasted earnings]

  • Current market sentiments

  • Company specific or industry specific news and its estimated impact on business


STEP 4 – Monitoring

You need to look out for change and take corrective actions and make decisions to accumulate, sell or buy considering any of the following parameters:

  • Changes in demand of product, competition, Government policies, costs or selling price,  emergence of new technology, political environment, management, future expansion plans, etc.

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