Stock Screening for Indian Shares

You finally decide to sit down, find some great indian stocks and invest in them. So, where do you begin? After all, there are thousands of companies out there. How do you pick the right ones? You quickly realise this can be an overwhelming task.

Try stock screening.

What is stock screening?

It refers to the study of snapshots of companies. As opposed to detailed reports. You focus on only a few financial indicators. As opposed several financial indicators all at once.

Why should you screen for stocks?

It helps you shortlist the obvious candidates. Look for the low hanging fruit. Even the legendary investor Warren Buffett spent untold hours screening for stocks at the beginning of his career. He got hold of Moody’s manuals. A compilation of company snapshots. And  he turned the pages. Thousands of them. Twice.

Where can you find screeners for Indian stocks?

Computers have made the task simpler than turning thousands of pages. There are three options for screening Indian stocks:

1. Free screeners: You can find free online screeners at Edelweiss and HDFC Securities. You can screen for stocks on such criteria as cheapness (PE ratio or P/BV ratio etc.) and quality (Return on capital, Profit margin etc.). One limitation is that these criteria are usually based on data from the latest year.

2. Paid screeners: There are also paid services like CMIE Prowess and Capitaline. They are particularly useful if you want to base your search criteria on more than one year’s data. Such as the average of several years’ earnings or returns on capital.

3. Compile your screener: You can also build your screener by compiling information on excel sheets. More time taking for sure, but it all gradually adds up.

How to screen for Indian stocks?

When you screen for stocks, do check if the results are accurate. For example, a cheap stock (low P/E) is many times cheap for a reason. Not always, but many times. Perhaps the earnings or asset quality has deteriorated. Perhaps, the earnings includes an extraordinary item, which artificially makes it look cheap. Your job is to find out when the stock is genuinely cheap. Use stock screening as a starting point and probe further. It helps to work with a skeptical mind.

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