E-Qual
E-Qual is the first-of-its-kind risk evaluation model in the country for quantifying and thereby objectively evaluating the governance aspect of management quality. This proprietory model facilitates a comparative analysis of the entire spectrum of stocks and helps avoid low-quality stocks from entering the portfolio, thereby minimizing risk involved with investments. The module has successfully ensured zero blowouts in our portfolios, thereby significantly preserving our clients’ capital.
Three-Pronged Investment Process
Earnings Growth Potential of the Business
How it Works
The E-QUAL model has helped Emkay Investment Managers to pick the most valuable stocks across the vast expanse of the markets. These stocks have been consistent growth generators for our portfolios across diverse investment themes evident in Capital Builder, Pearls, Gems, ENVI, India’s golden decade of growth and Emerging stars AIF series I to VI. The model has empowered are portfolios with stocks that have generated benchmark beating returns consistently over a period of more than a decade. The key to this has been selection of high quality stocks that have been our long term holdings and form more than 50% of our portfolio. Read on to understand how our model works.
Under the E-Qual module, companies are scored on aspects like management’s integrity and capability, wealth distribution, investor communication, and liquidity so that companies with accountability issues, ethical violations, conflict of interest and other corporate governance issues are systematically excluded from the portfolios.
Management Integrity (40%)
Management Capability (30%)
The robust E-Qual module brings in purchase price discipline so that we buy with a margin of safety and avoid timing the market. In the last two years, this module has helped us avoid more than 100 companies that have eventually blown-up, due to management and governance issues.
Purchase Price Discipline
| Benchmark Returns (% p.a ) Based on the Overall Parameters | |||||
|---|---|---|---|---|---|
| Relative Ranking | Large Cap-I | Large Cap-II | Mid Cap | Small Cap-I | Small Cap-II |
| Return Expectation | Return Expectation | Return Expectation | Return Expectation | Return Expectation | |
| 85% + | 16% | 21% | 26% | 31% | 36% |
| 70% – 85% | 21% | 26% | 31% | 36% | 41% |
| 50% – 70% | 26% | 31% | 36% | 41% | 46% |
| Below 50% | Avoid | Avoid | Avoid | Avoid | Avoid |
Target Price / Current Price
Expected Return
BUY
ELSE WAIT
Target Price / Current Price
Expected Return
BUY
ELSE WAIT
For us, a company categorized as “Large Cap I” with a ranking of 85%+ is expected to earn minimum 16% return. The rational being, minimum return expectation = (10 Year G-Sec Yield) x (2x to 3x).
