Quality 30: Profitable, Unlevered, Growing
Scores every Nifty 200 constituent on three fundamentals — return on equity, leverage, and profit scale — blends them into a single z-scored composite, and holds the best 30 weighted by score. Rebalanced quarterly, in step with the earnings calendar that actually moves the inputs.
Why this is expected to work
Quality is the "profitability" leg of the Fama-French five-factor model, and Novy-Marx (2013) showed gross profitability predicts cross-sectional returns about as strongly as book-to-market. The mechanism is not that profitable firms are cheap; it is that they are persistently mispriced because investors extrapolate from price action rather than from balance sheets. Low leverage is included for a different reason: it is the survivorship term. Indebted companies do not underperform gradually, they fail discretely, and a factor portfolio that ignores leverage carries a fat left tail that average returns hide. NSE's Nifty200 Quality 30 uses the same three-input construction (ROE, debt/equity, earnings variability).
How the pipeline works
NIFTY200 constituent
Keeps rows where nifty200_member == 1
nifty200_member == 1 Liquid: traded > Rs 5 cr/day
Keeps rows where turnover > 50000000
turnover > 50000000 Return on equity
Computes roe = net_profit_annual_consolidated / total_equity_annual_consolidated
net_profit_annual_consolidated / total_equity_annual_consolidated Debt to equity
Computes debt_to_equity = total_debt_annual_consolidated / total_equity_annual_consolidated
total_debt_annual_consolidated / total_equity_annual_consolidated Positive equity and profit
Keeps rows where roe > 0
roe > 0 Quality composite
Blends 3 factors into quality_score
Top 30 by quality
Selects the top 30 by quality_score
What this template teaches
- FactorScoreRule — cross-sectional multi-factor blending
- Winsorization against outlier z-scores
- Fundamentals with publication lag (no lookahead)
- ScoreProportionalWeighting
- Quarterly schedule matched to data cadence
The Quality Factor: Screening for Businesses, Not Charts
Profitable, unlevered companies have historically outperformed, and the reason has more to do with how investors form expectations than with risk. How to build a quality screen from Indian filings.
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