Always make your rejection policy while selecting stocks rather than selection policy for stocks selection in portfolio.
Worlds economy based on the stock market has lots of indices listed in worldwide exchanges, one of them national stock exchange (NSE) in India having around 55 indexes listed under NSE, and companies like small-cap, mid-cap and large-cap listed under these indexes. I suggesting you to make your own criteria for stocks selection in portfolio. You can check complete list of indexes and underlying stocks by clicking the below link.
By definition companies classified as Small cap, Midcap and Large-cap based on market capitalization as below –
- Small capital – Companies having total market capitalization less or equal to 5000 Cr.
- Mid capital – Companies having total market capitalization greater than 5000 Cr. and up to 20000 Cr.
- Large capital – Companies having total market capitalization greater than 20000 Cr.
First of all make your stocks selection in portfolio diversified among all sector (Small, Mid, Large), and make your rejection policy through your own benchmark instead of selection policy of stocks, pick the stocks as per below criteria –
- Identified the stocks grade, A is the highest grade, mainly there are seven grades of stocks namely, A, B, T, S, TS & Z. All other stocks which fail the characteristics of any one of these grades were kept in others. These grades are scores of stocks on the basis of their size, liquidity and exchange compliance.
- Pick only debt-free companies or companies having very low debt, check Debt/Equity ratio to know the debt info of company, set your own benchmark that this ratio should not more than 0.5, ignore stocks having D/E ratio >1.
- Check Promoters holding and pledged shares status, if the maximum holding is pledged by promoters then it is not a good sign to make the position in such stocks, in some cases we need to identify the reason behind share pledged sometimes maybe it in the good favor of the company.
- Check the PAT (Profit After Tax) or Net-profit of stocks, minimum 4 to 5 consecutive years PAT/Net-profit should be positive.
- Check whether the company provides dividends or not.
- Check holding of FII (Foreign institutional investor), DII (Domestic institutional investor), MF (Mutual Fund), Financial Institutions and Insurance Companies. Very simple to understand that they all having an interest in a particular stock after making depth analysis.
If you follow the above 6 points before making your portfolio then you will get a basket of awesome quality stocks in your portfolio. Good analysis with some criteria will help you to make better portfolio of stocks for short-term long term trading.
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