As you begin to draw up your plans for this financial year 21-22, here are a few things that you should keep in mind:
- Look out for companies having strong earnings correlation. A 20-25% CAGR in preceding 3 quarters and 3 years at the same pace shows consistency in earnings delivery
- Watch out for strong Institution holding. Ideally, increasing fund holdings is a good sign as big Institutions still remain in favor of the stock as far as the earnings momentum is concerned
- Leaders in individual sectors Leadership stocks in leading sectors that are doing well can exhibit strong growth and have stable business models, ensuring superlative topline growth, efficient margins, strong profits and correspondingly elevated earnings growth. They are also able to ride out economic cycles well.
- If the company exhibits profits and cash flows and adjusts for dividend payouts ploughs back in the business the ROE and ROIC shall show strong growth every passing quarter/year. These stocks are winners that should be looked at carefully
- There shall be phases in the market where certain sectors can do well. eg. Defensive sectors can do well when markets become volatile. Identifying sectors and the market direction, dynamics and sticking with leaders showing strong earnings can assist in better allocations.