Thread by @CaVivekkhatri

The biggest difference between retail and institutional investors?

Retail: “Should I buy now?”
Institution: “Does this pass our checklist?”

Here’s that exact 6-step checklist.

Use this before your next buy. Or risk regret.

🧵 Let’s break it down:

🔍 What You’ll Learn In This Thread:

✅ How to spot if a stock is actually worth it
✅ The 6 exact steps I run every stock through
✅ Real examples (Zee, Kingfisher, Tata Elxsi)
✅ Where to find the data for FREE
✅ My biggest mistakes (so you don’t repeat them)

📢 Before we begin…

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🧠 Truth Bomb: Most People Start With Price. Big Mistake.

Stock tips are like junk food.
→ Tasty.
→ Addictive.
→ And in the long run? Dangerous.

The real game starts with this checklist:
📌 Revenue
📌 Margins
📌 ROCE
📌 Debt
📌 Valuation
📌 Promoters

📈 STEP 1: Revenue & Profit Growth - The Pulse of a Business

Ignore this, and you're gambling.
✅ 5-year Revenue CAGR > 12%
✅ Profit CAGR > Revenue CAGR? Even better.

📊 Example: Tata Elxsi (2018–2023)
→ Revenue: ₹1,386 Cr → ₹3,154 Cr
→ Net Profit: ₹250 Cr → ₹755 Cr
→ Profit CAGR: 24.4%
→ Revenue CAGR: 18.2%

Verdict? 👑 Elite growth stock.

🚩 Red Flags to Watch:

→ Revenue up, profits flat = margin bleed
→ Sudden one-time profit spikes? Check “Other Income”
→ Inconsistent YoY growth = weak demand or poor management

📊 Where to check: > Financials TabScreener.in

What’s the first thing you check before buying a stock?

💰 STEP 2: Margins - The Hidden Truth About Efficiency

Two companies with ₹100 Cr revenue:
→ One makes ₹25 Cr profit
→ Other makes ₹6 Cr

Same sales. Completely different businesses.

✅ Operating Margin > 18%
✅ Net Margin > 10%
✅ Rising trend over 3–5 years = pricing power

📉 Personal Story:

I bought a midcap infra stock in 2020.
→ Revenue growth looked solid
→ But margins fell from 18% → 8% in 2 years

Didn’t notice.
→ Contracts delayed
→ Costs ballooned
→ Net profit vanished
→ Stock fell 43%

Lesson? Margins whisper what revenue hides.

📌 Where to check margin data:

→ > P&L & Ratios
→ Annual Reports > Financial Highlights
→ Compare with sector peersScreener.in

🧠 STEP 3: ROE & ROCE - The ‘Smart Money’ Test

These show how well the company uses YOUR capital.
→ ROE = Profit on shareholder equity
→ ROCE = Profit on total capital (equity + debt)

✅ ROE > 15%
✅ ROCE > 12–15%
✅ ROCE > ROE = low debt, high efficiency

🚩 My Mistake in 2021:

Bought a pharma midcap:
→ ROE: 17.5%
→ ROCE: 6.8%
→ Debt: ₹3,200 Cr 😳

ROE was boosted by leverage.

Once debt hit cash flow… stock tanked 28% in 2 weeks.

Check ROCE. Every time.

📉 STEP 4: Financial Health - D/E and Interest Coverage

You don’t want to buy a debt bomb.
→ D/E < 1 = safe
→ ICR > 3 = healthy
→ ICR < 1 = default risk

📊 Example: Kingfisher Airlines
→ D/E: 3.6
→ ICR: 0.7
→ Cash Flow: Negative
→ Stock: Wiped out

Even glamour dies when debt explodes.

🔍 Where to check debt data:

→ > Balance Sheet
→ Moneycontrol > Financial Ratios
→ Annual Reports > Notes to AccountsScreener.in

💸 STEP 5: Valuation - Don’t Overpay For Quality

Great business + bad price = bad investment.

✅ P/E < sector average
✅ PEG < 1
✅ P/B < 1 (for asset-heavy companies)
✅ EPS growing YoY

📊 Example:
→ Stock A: P/E 18, Growth 25% = PEG 0.72 ✅
→ Stock B: P/E 34, Growth 9% = PEG 3.7 ❌

📉 Painful Truth:

I once bought a “buzzing” tech stock at P/E 82.
→ PEG: 3.9
→ Earnings slowed
→ Stock crashed 17% in 9 months

Even Warren Buffett said:
“Price is what you pay. Value is what you get.”

🕵️ STEP 6: Promoter Holding & Pledging - The Insider Confidence Check

✅ Promoter holding > 50%
✅ Pledged shares < 10%

❌ Red flag: promoter stake falling + pledging rising

📊 Zee Entertainment (2020):
→ Promoter stake: 35%
→ 90% of it pledged
→ Lenders dumped shares
→ Stock collapsed

📌 Where to check promoter data:

→ NSE India > Shareholding Pattern
→ > “Shareholding” tab
→ Trendlyne > Pledge alertsScreener.in

Have you ever checked if promoters are pledging their shares?

📋 Your Final 6-Step Checklist

Save it. Print it. Tattoo it if you must.

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🙏 Thank you for checking out the thread.

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