CANSLIM Investing in the Indian Context
Aishwarya Christopher [Research Analyst cum Faculty]
William O'Neil's “How to Make Money in Stocks” has become a most important resource for stock market enthusiasts worldwide, particularly because it introduces readers to the CANSLIM framework, a systematic approach to picking potential top-performing stocks. Here, we'll explore three crucial CANSLIM takeaways and how they can apply within the Indian market.
Key Learning 1: CANSLIM Framework Breakdown
The CANSLIM method is an acronym representing key factors in stock selection:
C - Current Big or Accelerating Quarterly Earnings and Sales per Share: Current quarter earnings per share should be up a major percentage 25-50% over the same quarter previous year. But always ex-out one offs examples like extraordinary income, sale of land, gains for just 1 Quarter and gains from contract termination, etc.
A - Annual Earnings Increases: That means the annual rate of earnings growth for the companies you pick should be 25%, 50% or even 100% or more.
N - New Products, Companies, or Highs: For example, In India, companies like Astral Ltd, which expanded from PVC pipes to adhesives, and Navin Fluorine, with its shift to long-term contracts, showcase this well. Pricol Ltd. leveraged digital clusters to tap into the connected automotive market, while Orient Refractories (now RHI Magnesita) gained strength through its integration with a global leader. Each of these companies has thrived by innovating or expanding strategically, proving that a fresh approach or new market can significantly enhance a stock’s performance.
S - Supply and Demand: High trading volumes at key moments can indicate growing interest.
L - Leader or Laggard: Choose market leaders rather than laggards. HDFC Bank, often a leader in the financial sector, typically performs better than smaller, less-established banks.
I - Institutional Sponsorship: Large investments from mutual funds or FII can add credibility. TCS enjoys strong institutional backing, which signals stability to retail investors.
M - Market Direction: Gauge overall market trends before investing.
Key Learning 2: Sectoral Movement Correlation
Recent global events, such as the Israel-Iran conflict and geopolitical tensions, have a significant impact on sectoral performance, especially when combined with Foreign Institutional Investors (FII) selling. In the Indian context, FIIs are crucial players in sectors like banking, technology, and energy, and their selling can cause substantial stock price fluctuations.
Key Learning 3: Technical Analysis
In the current market, where geopolitical tensions and FII selling are causing heightened volatility, technical analysis becomes even more crucial for Indian investors. Market fl uctuations provide opportunities to buy strong stocks at support levels or to capitalize on uptrends in resilient sectors.
For instance, during recent market dips influenced by FII selling and global tensions, several blue-chip stocks like Reliance Industries and ICICI Bank tested critical support levels, creating potential entry points for long-term investors.
This technical approach, combined with the CANSLIM criteria, can help investors make informed decisions and stay resilient through fluctuating market conditions.