How we judge a business — and turn that judgement into a single rating.
Moat, fair value, uncertainty, and conviction — rebuilt for Indian markets.
The rating architecture
Behind every Arthavetta report stands a standing methodology — the same questions, asked in the same order, of every business we cover. It exists so that a four-star industrial and a four-star lender mean the same thing: a comparable, risk-adjusted expected return.
The framework rests on the enduring principles of sound equity research — a durable competitive advantage, discounted-cash-flow intrinsic value, a margin of safety that scales with risk, and a forward-looking view of how management allocates capital. Each we have rebuilt for the market we actually invest in: for India's cost of capital, its liquidity, its disclosure norms, and the promoter–minority dynamics that define governance here.
The logic flows in one direction, and every covered company passes through all six steps.
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The Gate
Conscience Gate
A binary screen applied before any valuation work begins. Tobacco, alcohol, gambling and addictive industries, and animal cruelty are excluded from coverage outright — a values-native gate, consistent with the families we serve, rather than an outsourced ESG score.
A business can be a wide-moat compounder and still be un-investable for Arthavetta.
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Endurance
Durability Rating
How long a company's excess returns on capital can be expected to persist — rated Enduring, Limited, or None, with a trend. We test the five classic sources of advantage, and add three lenses drawn from India's market structure: distribution reach, licence position, and promoter-group access.
The question is how long, not merely whether.
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Valuation
Fair Value Estimate
An intrinsic value per share from a three-stage discounted cash flow. Durability sets how slowly returns are allowed to fade; the terminal value is disciplined by hard rules rather than analyst discretion, so that growth is never free.
Value is what the business will pay its owners — discounted honestly.
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Transparency
Risk-Range Rating
The range of outcomes around our fair value — Low through Extreme — which sets the margin of safety we demand before any purchase. Onto the statistical band we lay a governance-and-liquidity overlay that can only widen the range, never narrow it.
In India, permanent loss comes from the ownership structure more often than the income statement.
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Stewardship
Capital Allocation Rating
Judged over a full economic cycle and rated Erosive, Sound, or Accretive, across four pillars: the balance sheet, investment and M&A, shareholder distributions, and — decisively, for India — promoter stewardship and minority alignment.
Clean economics do not redeem an owner who does not share them.
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Conviction
Conviction Star Rating
The headline output — one to five stars. Today's price is compared with our fair value estimate, and the discount required for each star widens or narrows with the Risk-Range Rating. The wider the range of outcomes, the deeper the discount before we will call a business cheap.
Conviction is earned at a price, not asserted at any price.
What makes it an Indian methodology
The conventions we adopt are those of rigorous institutional research. The adaptations are ours — and they are the reason a global template, applied unchanged to an Indian business, quietly misprices it.
Built natively in rupees
The cost of equity is constructed from the India G-Sec and the India equity risk premium — not a developed-market rate with a country spread bolted on afterwards. It reflects the risks an Indian investor actually bears.
Priced, because it is not diversifiable
Our clients hold concentrated, rupee-denominated Indian portfolios — not India as one sleeve of a global book. For them, India risk cannot be diversified away, so it is priced in the discount rate, and cross-checked with probability-weighted scenarios.
A governance rating first, a volatility rating second
Promoter pledging, auditor signals, related-party dealings, thin float, and regulator-dependent earnings each widen the range. The overlay can only widen it. A cheap price does not earn a buy if the risk of permanent loss sits in the ownership structure.
A fourth pillar: promoter stewardship
In India the promoter–minority relationship is the central capital-allocation question, not a footnote. So we elevate it to its own pillar and judge all four from the seat of a minority shareholder.
A higher bar for the top tier — and size bands that hold still
Listed histories here are shorter and disruption faster, so an Enduring rating must be earned with a demonstrated returns record through a full cycle, never assumed from a strong narrative. And we classify size on stable, absolute rupee bands rather than shifting market-cap percentiles — because consistency of definition across every report matters more than alignment with an external index.
Where VETTA lives in the methodology
Our investment engine is not separate from this framework — the framework is what puts it to work. Each principle of VETTA has a measurable home in the ratings above.
| VETTA Principle | Where it lives in the methodology | Primary rating |
|---|---|---|
| Visionary Governance | Board independence, promoter integrity, related-party discipline | Risk-Range · Capital Allocation |
| Endurance & Resilience | Durability of excess returns through cycles and shocks | Durability |
| Transparency & Trust | Disclosure quality, auditor signals, governance history | Risk-Range Overlay |
| Targeted Opportunity | The price-to-value gap and its catalyst — only where conviction is earned | Conviction Star Rating |
| Accretive Wealth Creation | ROIC sustained above WACC; the quality of reinvestment | Durability · Capital Allocation |
The framework is public. Its calibration belongs to our clients.
The complete methodology document — the star-rating thresholds by risk band, the governance overlay triggers, the fade and terminal-value rules, the forensic screen for earnings and cash-flow quality, and the twelve-section report format — is shared in full with advisory clients, and is reviewed at least annually.
This page describes methodology only. It is not investment advice, does not constitute a recommendation to buy or sell any security, and takes no account of any specific investor's objectives or circumstances.
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