A new beginning

It has been 30 years since we launched our first rating. This was obviously a rating system for mutual funds, the Value Research Star Rating system. In the 360 months since then, we have recalculated and updated the rating. It started with rating 80 public sector mutual fund schemes and has now grown to more than 1,000 mutual fund schemes. During these decades, millions of Indian investors have used our rating system to choose good funds to invest in and avoid bad funds they were tempted by.

Just like the stock rating we are launching now, the fund rating always had five grades, from one star to five stars. At that time, the idea of rating things on a one to five-star scale was novel. People were familiar with five-star hotels, and there was five-star chocolate, which was just a brand. As far as I recall, nothing else in India would familiarise people with the idea of star ratings.

In sharp contrast, the idea of star ratings is pervasive now. Every product on Amazon, Flipkart and other e-commerce sites is star-rated. When you travel by Uber and Ola, not only do you rate the cab and auto drivers on a star rating scale, but the drivers rate you, too! We select or reject things based on their star ratings every day. This is an interesting phenomenon in the context of star rating systems of the kind that Value Research has created. All these ecommerce systems are basically crowd-sourced rating systems. None of them are ratings created by an external research setup.

Our rating systems are not crowd-sourced; they are based on rigorous proprietary research and analysis. Our methodology for our star ratings may have evolved over the years. But, we have always focused on quantitative measures of financial performance and not on sentiment or user opinions.

As star ratings became ubiquitous, we did worry that their proliferation might diminish the cachet of Value Research Fund Ratings. However, we have found the opposite. As more products get casual star ratings on e-commerce sites, investors recognise that a Value Research rating is special. It is a certification of quality, not a fickle indicator. Our ratings hold meaning because of the expertise, insight and effort behind them. The same founding principles will shape the Value Research Stock Ratings. The objective is to surface good ideas, not just popular ones. We aim to highlight opportunities that create long-term value, not short-term excitement.

So, what will these ratings offer? Essentially, the ratings are a pre-prepared packet of rapid research that you can activate immediately for any stock. It's an investing framework that guides the first stage of the investing decision about any stock.

A strong investing framework serves as a consistent decision-making tool, narrowing the universe of possible investments to a suitable subset for further analysis by applying a common no-exceptions set of principles. Pre-committing to a philosophy and process helps investors avoid emotional decisions, filters out noise, saves time spent creating new strategies, and, most importantly, guides actions rather than reactions in the face of volatility.

Notably, the stock rating system is not the whole thing, i.e., it is not a complete system for choosing investment-worthy stocks. You can't just pull up all five-star stocks and use that as a portfolio. Instead, it is a prefiltering system that starts you off on a strong path quickly. Most importantly, it will not let you forget anything. Investors tend to get excited about stocks and ignore the negatives. A rating framework prevents such mistakes.

This is a beginning. As time goes by, we will evolve the framework to help investors in more ways. Investors, too, will find new ways to utilise the ratings. It will be an exciting and profitable journey - let's begin.

Also read: Why you should use Value Research Stock Ratings