My Investing Framework
In the current market, especially within India’s micro-cap and small-cap space, there are many fundamentally strong companies whose stock prices have begun diverging from their underlying business prospects. Weak sentiment has pushed several high-quality names into zones where valuations look attractive again.
In this post, I want to lay out how I evaluate stocks across the full lifecycle, buying, sizing, holding, and selling, and how I’m approaching this market with a clear framework.
How I Look at Stocks While Buying
My buying decision starts with hard criteria, completely non-negotiable, and proceed with soft criteria, which refine conviction and end with technicals to refine position sizing.
Hard Criteria (Non-negotiable)
Revenue growth ≥ 12-15%
Expected PAT growth ≥ 20%
Valuation sanity via PEG < 1.5
This helps anchor what I’m willing to pay:
If earnings can grow 20% CAGR for 3 years → I’m okay paying 30–35× PE.
If expected growth is ~30% → up to 50× PE is reasonable.
Beyond 30%+ growth expectations, execution risk spikes, I usually skip.
PE multiples are good shorthands in most industries, else EV/EBITDA, P/S and P/B are good proxies. Valuations class sometime later.
Manageable debt, or at least a visible path to debt reduction
Positive operating cash flows (or clear reasons such as year-end working capital swings).
If cash flows aren’t consistently positive, then reinvestment must be funded by internal accruals with a stable debt profile, ideally with some dividends flowing through.No equity dilution, I dislike QIPs unless it’s a rare exception.
A QIP at high valuations benefits promoters, not minority shareholders. So for me, it’s a strict no.No frequent promoter selling, Higher promoter holding can work in favour in favourable business cycles as lower float leads to supernormal returns.
Soft Criteria (Conviction Builders)
This is where the long-term comfort comes from:
Does management walk the talk across cycles?
How clean and consistent is their communication with investors?
Do they quietly execute, or do they oversell every quarter?
Do they show a tendency to sugar-coat weak numbers?
What is the stability of top management? Frequent churn is a red flag.
How do they allocate capital? Any signs of diworsification into unrelated business or allocating capital towards lower margin business all signal existing growth runway is either exhausted or management is just clueless.
My watchlist is built purely from hard filters.
My final buying and holding decisions depend on these softer signals.
If I sense management discomfort, or narrative holes, I’m perfectly fine selling the name even a day after buying.
Comfort matters, not ego. My vibes should match with the management.
Once I am convinced on both hard and soft criteria, I sometimes give a thought on the business using some of below things.
Michael Porter 5 forces answering below questions in my head:
are there any switching costs in the business as these will keep tailwinds sustain longer
is market fragmented or consolidated
what is bargaining power of the co in marketplace
One can also look at the thesis from lens of some mental models which move the needle
Loss to Profit turnarounds
Product mix changing for better
Debt reducing
Operating leverage
Constrained supply and excessive demand
Acquisition of new customers or geographies using related companies
Cyclical turnarounds
Management change
Asset Heavy → Asset Light
How I Use Technicals
Over the past year, technicals have become a bigger part of my process, either for stock filtering or for timing and sizing.
I check charts of all companies between 500 - 50K Cr MCAP every few weeks to get a pulse of whats moving and how.
I check top 50-100 stocks which moved up and moved down almost daily again to get a sense if something is showing excessive strength or excessive weakness.
What I check on charts:
10-week EMA above 30-week EMA → clean uptrend
Volume spikes → tells me the activity in the name
Avoid charts with giant, choppy candles → indicates weak hands
Prefer steady weekly price action rather than erratic swings
If fundamentals, valuations, management comfort and technicals all align → I buy aggressively. Usually good technicals also come in places where sectoral tailwinds are good, so odds of making money improve vastly.
If technicals are weak but fundamentals + valuations + management are strong →
I start small or simply track it daily until a better entry appears.
In short:
Management, fundamentals, valuations → must-haves
Technicals → influence position sizing
Related part is Sectoral momentum which improves odds
Position Sizing
I prefer 20–25 names, fewer is better.
Starter allocation is 2–4%.
If I’m wrong, portfolio drawdown is contained.If everything aligns (management + fundamentals + technicals + valuations + sectoral tailwinds),
I scale up to 8–12% without hesitation.For micro-caps with uncertainty → 1–2% only.
Final key idea during buying:
Base Rate Thinking (Default Outcome > Story)
Before getting excited about a company’s narrative, ask:
What usually happens to companies like this?
What’s the survival rate? How long tailwinds last?
Avoid “This time is different.”
Never project 20-30% growth rates beyond 2-3 years.
Base rate protects you from overpaying for structurally mediocre businesses.
Selling Framework
I sell without emotion or anchoring.
I exit when:
I find a clearly superior opportunity across my 4 pillars
(management + fundamentals + technicals + valuations).My original thesis breaks.
I realize my understanding of the business is superficial and my conviction is shaky.
Capital is limited and ideas are abundant.
As the saying goes, stocks are girlfriends, not wives.
Sometimes I do treat some or other stock as my wife :D
No fixed holding periods, it could be a day, a few months, or years.
In India, very few names outperform steadily for 5+ years. Most go through 2–3 year bursts of supernormal returns before growth moderates or valuations stretch.
If a stock doubles in a year and the thesis still holds:
Either I leave it untouched
Or gradually trim 10–20% of position over weeks/months
I cant sell on top.
Key idea which I consider very important during selling:
Mean Reversion
Margins revert
Valuations revert
Growth reverts
Excitement reverts
How I’m Looking at the Current Market
My broader watchlist has ~80-100 names that can deliver 20%+ PAT CAGR over the next 2–3 years. I bucket them as follows:
1. Strong earnings visibility + meet most buying criteria
These are ideal, but many are already trading at valuations where growth expectations are fully priced in. Any disappointment could lead to sharp corrections, so I’m cautious here and usually avoid.
2. Reasonably valued + already good or improving earnings each quarter (Top candidates)
These are my highest priority for adding to the portfolio.
Examples: Ashiana, AGI Infra, Arman, Ujjivan, Ramco Systems, Windlas, NH, Time Technoplast, Artemis
I mentally rank them based on:
Growth runway
Valuations
Sustainability of earnings
Management comfort
and then decide position size using some technicals
3. Names that may face 1–4 weak quarters
Reasons include tariffs, under-utilised new capex, pricing pressure, etc.
Here, management quality becomes paramount.
Examples: Jagsonpal Pharma, Shivalik Bimetals, Pearl Global, Pokarna
These are often in Stage 4 decline on charts, falling weekly. Eventually they hit Stage 1 basing zones where prices move sideways, volumes dry up on down days, and accumulation starts.
I prefer building positions patiently during Stage 1, not catching every dip.
Capital is limited; conviction can be maximised by allocating aggressively on my best 3–5 ideas.
If I find some name more favourable in bucket 2, I am happing replacing from this bucket without any qualms.
Final Takeaway: My Framework for Buying in This Market
Hard filters first: growth, cash flows, valuations, leverage
Soft filters next: management quality, communication, consistency
Technicals & Sectoral Momentum for timing and sizing
Position sizing reflects certainty and management quality
Replace weaker ideas quickly when better ones emerge
If a business has:
The right fundamentals
Reasonable valuations
Clean management signals
Constructive technical structure and sectoral tailwinds
…it becomes an immediate candidate for me to buy.
Otherwise, it stays on the watchlist, because in markets like these, patience and selectivity are advantages.
Ultimately, buying and selling is a call on expectations.
If I feel the market already bakes in too much optimism, I begin trimming my position.
If expectations are muted, I either start accumulating or wait for technical confirmation.
The ability to judge expectations comes only with time and by observing example after example unfold each year. And honestly, it’s still Day 1 for most of us in this journey.
The gap between what the market expects and what the business actually delivers rarely persists for more than a few quarters. That’s why most of my holding periods naturally stay within the 2–3 year range.
All these heuristics have been developed based on what has or has not worked for me -
Strong business momentum cannot compensate for expensive valuations. Even great companies can deliver mediocre returns if you enter at the wrong price.
Weak business momentum doesn’t get fixed just because valuations look cheap. A catalyst is important to turn a stock with cheap valuations investable.
The best outcomes typically happen when expectations are low at the start and tailwinds start showing up gradually, like Polycab, Newgen, RPG Life, Neuland, TD Power where the market wasn’t pricing in the upcoming momentum.
Final tips:
At the end of the day, as retail investors, we aren’t competing with anyone else, the only competition is our own discipline and decision-making.
Mistakes happen, accept and move on quickly. Avoid sunk cost fallacy.
Just make a portfolio of 20-25 names and even with equal weighted allocation it would do well if some sanity checks are done at the entry and selling discipline is followed.
This is clarity! Excellent Work
Exceptional 👌