In compiling the model portfolio, Forbes India took a combination of high returns on capital employed (RoCE) with a relatively low price-earnings (P/E) multiple. It is pointed out that there will be times when the P/E multiple might appear expensive but if a company has a sustainable growth path, investors should keep buying.
Forbes has given the example of Berger Paints which, in the last five years, has compounded its profits by 15 percent. This, coupled with a RoCE of 24 percent, has seen the stock compound at 49 percent a year for the last five years. The story repeats itself with Havells India, another outperformer.
Investors are advised to stick to quality in this market and the move will eventually pay off.