Selecting Robust Businesses

The main objective of this post is to provide a practical, time-efficient method to filter thousands of listed stocks down to a manageable list of high-quality companies for trading.

The key takeaways from the sources are as follows:

1. The Challenge of Scale

There are between 1,500 to 2,000 companies listed on the NSE and approximately 5,000 on the BSE. It is not practically possible for a trader to track the financial results or news for every single company. Instead, the goal is to filter these down to a “trackable” list of 130 to 160 companies to which technical chart patterns and strategies can then be applied.

2. The Recommended Tool: Screener.in

The source recommends using Screener.in as the most effective tool for accessing financial information. While a paid version exists, the session highlights that the free version is sufficient for creating custom screens and identifying top-tier companies.

3. Five Essential Filtering Criteria

To identify “great companies,” the session outlines five specific financial metrics to enter into the query builder:

• Debt to Equity Ratio < 0.25: This ensures that the company’s debt is no more than 25% of the shareholders’ equity.
• Return on Capital Employed (ROCE) > 20%: This identifies companies that are highly efficient at generating profits from their capital.
• Net Profit > 200 (Crores): This filters for established companies with a significant profit baseline.
• Public Holding < 30%: A very high public holding can sometimes be a cause for concern; keeping this under 30% helps filter for stronger ownership structures.
• Pledging Percentage < 10%: This ensures that the promoters have not pledged an excessive amount of their shares.

Running this query typically results in a list of about 128 high-quality companies, including well-known names like TCS, HUL, and ITC.

4. Accounting for Banks and NBFCs

The criteria mentioned above (specifically ROCE > 20%) often exclude banking and NBFC (Non-Banking Financial Company) stocks because their business models naturally result in lower ROCE. To complete your list, you should manually add:

• The top 10 banks by market capitalization.
• The top 20 NBFCs by market capitalization.

This brings the total watch-list to approximately 158 companies.

5. Practical Data Management

• Manual Export: Since the “Export to Excel” button is a paid feature, you can copy the data directly from the screen and paste it into an Excel file to create your own master list.
• Watch-lists: Once identified, these companies should be added to a TradingView watch-list for regular monitoring. Note that the free version of TradingView has limits on the number of watch-lists, which may require specific workarounds.

Analogy for Understanding: Think of the stock market like a massive ocean with thousands of fish. You cannot catch them all, and many are not worth your time. The Screener query acts like a specialized net with specific mesh sizes: it lets the small, debt-ridden, or unprofitable fish swim away, leaving you with only the “prize catches.” Because some valuable species (like banks) don’t fit the standard net, you simply go back with a smaller hand-net to pick the very best of them individually.