Long Term Gems

This scanner gives you a list of Indian stocks based on their history of reliable performance, strong financial health, and companies that are growing faster than the GDP of India.

Let’s look at the filters used to build this:

Market Capitalization

For Indian companies, we’ll take the minimum market capitalization of INR 10,000 crores, as the reliability of data on companies smaller than this is somewhat susceptible and they are considered more risky.

Earnings Growth

Under this factor, we use profits after tax (PAT) and sales growth metrics to track the earnings growth. Profit after tax (PAT) refers to the amount remaining after a company has paid all of its operating and non-operating expenses, liabilities, and taxes. This profit is either distributed to shareholders as dividends or retained as earnings in reserves. Sales growth is the increase in sales of a product or service over time, indicating how well a business performs in terms of revenue from sales. Here, we get companies that have profit and sales growth of the last 5 years of more than 15% and 12% respectively.

Return on Capital Employed (ROCE)

This is a financial ratio used to assess a company’s profitability and capital efficiency. ROCE indicates how effectively a company generates profits from its capital. A higher ROCE suggests better utilization of capital in generating profits. In this scanner, we have used an average ROCE for the last 7 years of more than 15%.

Debt to Equity Ratio

The debt to equity ratio measures a company’s financial leverage by comparing its total liabilities to its shareholder equity. It indicates the proportion of debt used to finance the company’s assets. A high ratio suggests higher risk due to potential repayment issues, while a low ratio indicates financial stability and less risk. In this scanner, we filtered out companies whose debt-to-equity ratio is less than 1 because it indicates that a company has more equity than debt and the company relies less on debt financing.

Operating Profit Margin

This represents the percentage of revenue a company retains after deducting operating expenses. The operating profit margin metric helps to gauge a company’s efficiency in generating profits from its core business activities. Higher operating profit margins indicate better operational efficiency and potentially stronger financial health, making it an essential factor in investment decision-making. In this scanner, we filtered out companies whose OPM is greater than 10%.

Cash from Operating Activities

It represents the cash generated by a company’s core business operations. It indicates the company’s ability to generate cash from its primary activities, like sales of goods or services, excluding cash flows from investing and financing. This metric helps to assess a company’s financial health and its ability to sustain and grow its operations.

By using the above filters for the scanner, we have obtained a list of fundamentally strong companies that are growing at a rate faster than the GDP of India.