Shows a step by step method of how you can make an investment portfolios using various screening criteria in bloomberg

1. Contents (Ctrl+Click to go to a specific topic)
1 Sectors Selected for Construction of Portfolio ........................................................1
1.1 Sectors Selected using Bloomberg....................................................................1
1.2 Reasons for Selecting the Specific Sectors.......................................................1
2 5 Screening Criteria to Shortlist/ Screen the Stocks (Reasons behind the Choice of
Screening Criteria)..........................................................................................................3
2.1 Criteria 1: Current Enterprise Value / EBITDA must be between 10 to 20.....3
2.2 Criteria 2: Revenue Growth Year on Year for 3 years must be greater than 10%
4
2.3 Criteria 3: Latest Year EPS 1 year growth must be greater than 10% .............4
2.4 Criteria 4: Total Debt to Total Equity must be less than 1 or 100% ................4
2.5 Criteria 5: Price 1 Day ago must be less than 2000..........................................4
3 List of 15 Shortlisted Stocks after applying the Screening Criteria ........................5
4 Table of Correlation of those 15 Stocks ..................................................................5
5 Final Short list of 6 Stocks and Reason why ...........................................................6
6 Covariance of those 6 stocks ...................................................................................6
7 Calculating the weights of those 6 stocks for the portfolio composition. ...............7
8 Analysis of Portfolio Against the benchmark..........................................................9

2. 1
1 Sectors Selected for Construction of Portfolio
1.1 Sectors Selected using Bloomberg
The Sectors selected for creating the portfolio range from Consumer Finance to
Media & Entertainment to Water Utilities, to give a well-rounded portfolio. The sectors
are selected using EQS function in Bloomberg also known as Equity Screener. A total
of 13 sectors and Sub-sectors are chosen to carry on further screening.
1.2 Reasons for Selecting the Specific Sectors
• Media and Entertainment – India has the 5th
largest entertainment market in
the whole world. According to Invest India report of 2018, the CAGR for the
industry is expected to be 15.3%. This sector is included keeping in mind the
long term returns from the portfolio.
• Consumer Staples - The Consumer Staples sector historically has
outperformed during periods of economic slowdown and uncertainty, as
investors are attracted by the perceived relative stability of the group portfolio.

3. 2
So, this sector is taken in consideration to balance the overall risk of the
portfolio
• Oil and Gas Consumable Fuels as well as Independent Power and
Renewable energy business – The oil demand in India is 10 times higher than
what it can produce. So, demand for this sector is very high and so are the
returns and to counter the effect of portfolio lag due to government push
towards sustainable energy sources the sector of “Independent Power and
renewable energy” is also included to balance the portfolio.
• Asset Management and Custodian Business – This sector will provide a
well-rounded coverage to our portfolio. This sector will do extremely well in
a growing market/ economy. So, to take advantage of that this sector is
included.
• Consumer Finance, Diversified Financial Services and Insurance – India
is a consumer driven economy and financial inclusion is a big challenge as
well as opportunity for India.
• Pharmaceuticals Biotechnology – With growing pollution and advent of new
diseases the healthcare and pharma companies will become a part of our life
style. Thus, has numerous growth opportunities. They are and will be part of
the most long-lasting mega trends and thus become a cash cow in future.
• Software and Services – IT sector and in it specifically the software and
services sector has shown immense growth in the past decade. Technology
stocks offer investors a lot of opportunities. In fact, the sector offered the
highest returns of all ranked market sectors.

4. 3
• Transportation - Transport infrastructure and services are fundamental
public goods that affect the way societies and economies function. These
include companies such as airlines, trucking, railroads, shipping, and logistics
firms, as well as those that provide transportation infrastructure.
• Water Utilities – Like consumer staples, water utilities are likely to give
stable returns since they fall under the basic needs of mankind. Thus. They are
included to possibly reduce the overall risk of the portfolio.
2 5 Screening Criteria to Shortlist/ Screen the Stocks (Reasons behind
the Choice of Screening Criteria)
2.1 Criterion 1: Current Enterprise Value / EBITDA must be between 10 to 20.
EV/EBITDA is a ratio that compares a company's Enterprise Value. It looks at the entire
market value rather than just the equity value, so all ownership interests and asset claims
from both debt and equity are included. Thus, provides a more accurate picture than P/E
ratio. An EV/ EBITDA of between 10 to 20 is an optimal range because it shows that
the market has a positive outlook on the future earnings of the company and at the same

5. 4
time the ratio is not greater than 20 which indicates the company is not totally
overvalued.
2.2 Criterion 2: Revenue Growth Year on Year for 3 years must be greater than
10%
Out of the sectors selected the company, must be a market leader or a potential market
leader for starters, with a growth in their sales revenue. Thus, a criteria of revenue
growth of greater than 10% over the last 3 years.
2.3 Criterion 3: Latest Year EPS 1-year growth must be greater than 10%
The EPS growth year on year shows that after deducting all the extra costs to get the
revenue growth it is transferring into profits and the revenue growth is the result of
actual product and performance and not just because of excessive discounts and offers.
This criterion will show the actual profit-making capacity of the company for its
shareholders.
2.4 Criterion 4: Total Debt to Total Equity must be less than 1 or 100%
The company must be able to meet both its short term and long-term debt obligations
and also the debt must not be greater than the equity because with increasing debt comes
risk in business. So, to avoid picking such companies and getting fundamentally strong
companies this criterion is used.
2.5 Criterion 5: Price 1 Day ago must be less than 2000.
Lastly price of each share must not be greater than 2000, because it some times will
limit your returns that you get from price appreciation (capital appreciation). Thus,
moderately priced stocks with strong fundamentals is the way to go.

6. 5
3 List of 15 Shortlisted Stocks after applying the Screening Criteria
These are the 15 stocks that are remaining after screening the stocks through the 5
screening criteria which is also done in the Equity Screener in Bloomberg using the
EQS function.
4 Table of Correlation of those 15 Stocks
To further select the 6 stocks out of the shortlisted 15 stocks returns for the last 3 years
on a monthly basis is taken from yahoo finance. The yearly returns and standard

7. 6
deviation are calculated and the stocks giving a negative return are eliminated and for
the remaining stocks the correlation between them is calcualetd.
5 Final Short list of 6 Stocks and Reason why
Since the fundamentals of all these 15 stocks are already checked in the equity screener,
correlation among these stocks is taken into consideration while choosing the final 6
stocks. After the correlation is calculated, the lowest 8 correlation are taken and out of
those stocks the 6 stocks that gave the highest return are finally taken as the final 6
stocks for making the portfolio.
The final 6 stocks are Tata Consultancy Services (TCS), Varun Beverages, Larsen &
Toubro Infotech Limited (LTI), Mindtree, Radio Khaitan, Inox leisure.
6 Covariance of those 6 stocks

8. 7
7 Calculating the weights of those 6 stocks for the portfolio
composition.
• The returns and the risk measured by standard deviation is taken in to a new sheet
in Excel
• The risk-free rate is taken as 6.4%
• At first 1/6 weight is given to all stocks and their sum is taken as 1
• The expected return and standard deviation of the portfolio is calculated for the
portfolio

9. 8
• Sharpe ratio is also calculated using the portfolio risk and return.
• To get the final weights for the 6-stock portfolio, ORP is calculated. This is done
using solver function in Excel. The objective here was to maximize the Sharpe
ratio. The constraints were that the individual weights have to be greater than
equal to 0 and sum of the individual weights must be equal to 1.
• The Weights of the ORP are taken as final weights.
• The following graph represents a graph of the return plotted between the
minimum variance portfolio and the ORP.
0.000
5.000
10.000
15.000
20.000
25.000
30.000
4.000 4.200 4.400 4.600 4.800 5.000 5.200 5.400 5.600 5.800 6.000
Portfolio return

10. 9
8 Putting the weights and Analysis of Portfolio Against the
benchmark.
The Weights calculated in the above process is put in the weights column of the
portfolio in the PRTU function of Bloomberg to analyze the portfolio as compared
to the benchmark.
The portfolio of the 6 stocks when compared to ICICI PRUDNTIAL NIFTY ETF,
the portfolio is performing extremely well. The 6-stock portfolio is giving a 90.48%
return where as the benchmark is giving 3.45% return. So, the net return of the 6-
stock portfolio comes to 87.03%.