Fundamental scoring for the portfolio of winners on Indian bourses

This paper tries to examine whether application of „simple historical financial information based fundamental analysis‟, when applied to a broad portfolio of companies ranging across industries selected based on the principals of value investing, can shift the distribution of returns earned by an investor to the right of the return curve. We show that „fundamental scoring – based selection strategy‟ (V_SCORE) in portfolio formation of expected winners provide significant excess market-adjusted returns over portfolio of expected losers. We analyze the performance of the portfolios formed by measuring company specific returns as „1 year & 2 year Buy – & – Hold‟ returns earned from the end of 1st quarter after fiscal year end over period of 1 & 2 years respectively. We conduct an empirical assessment of returns made from portfolio selected based on fundamental analysis carried over historical financial data pertaining to FY 2008-09, FY 2011-12 & FY 2014-15 to assess the robustness of the strategy across different time periods and conditions in stock markets. Furthermore, we present our results pertaining to shift in the distribution of the returns earned by the investor, to the right of the return curve through our V_SCORE investment strategy and test the statistical significance of the same using Mann-Whitney U-Test. Overall, we bring home the fact that our strategy can provide an excellent starting point in the valuation of the stocks.