A 4-step framework for finding contrarian stock ideas.

easily.

On 17th August 2025, we did an online talk titled - ‘Contrarian Investing in choppy markets’ with Mr. Karan Rajpal (Thank you Karan sir 🙏🏽)

Want access to the recording? DM us. Thank you

We discussed an entire framework for finding/analysing contrarian bets. However, a key feedback was that few sections could’ve been more specific (i.e - step by step).

So here goes…

A Super-dumb but effective, 4-step framework for finding contrarian stock ideas.

The goal is NOT to find beaten down stocks, the goal is to make money.

The contrarian style of investing naturally gravitates towards ignored, beaten down and make-you-want-to-puke-kind of sectors because that’s where the bargains are. And frankly…

I’m NOT necessarily looking to find something worth buying TODAY. I’m looking for an investment that can start start performing (at least business wise) 3 to 12 months down the line so when it does I’m ready to pounce.

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THE “FRAMEWORK”

Step 1: Type NIFTY 500 in the www.screener.in

Step 2: Sort by 3 year price returns. Worst on top.

Why? : The worst performing stocks in 3 years basically turn off most sane people, leaving potentially juicy opportunities for weirdos like us.

When I did this exercise very recently (19th August 2025) there were 48 companies that had a No 3-year returns history meaning either they were de-merged or recently listed without a 3-year price history.

I left them out for this exercise. If you like you may go ahead and scan these too.

Here’s a list of Worst 30 (Excluding 48 companies with no 3 year price history) of the NIFTY 500 companies.

Step 3: I run a FPI scan™️ (<10 mins per company) on each one of these companies.

Why? I basically want to get hit by a bat on my face while going through the FPI scan™️. Something should grab ME.

I lay emphasis on the words ME because a different set of companies might grab YOU.

At this point the sole objective is to create a shorter list of stocks where I would like to spend 2-4 hours on.

For this exercise I conducted the FPI scan™️ on 15 of the worst companies filtered by 3 year price returns.

The companies that grabbed ME are boldened in the list above. These were :

1. AWL Agri business (Adani sold ‘Fortune’ brand to a singapore based company)

2. Zee Entertainment (Shareholders rejected preferential to promoters)

3. Aarti Industries (Strong balance sheet in a downturn)

4. PVR Inox (A turnaround candidate?)

For whatever reason (except that its balance sheet looked the strongest), I went ahead and dug deeper into on Aarti Industries (Disclaimer: No Holding) and guess what, I wrote an article in The Indian Express.

In the article I outline the challenges the company is undergoing on an industry level (china saala) and company specific level (huge capex, low utilisations etc) and “triggers” that can unlock value.

click to read on Indian Express website (🔒)

Step 4: Add or don’t add to your watchlist.

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A few questions arise :

Q1. What is the FPI scan™️ you mentioned Rahul? How can I use it to quickly size up ideas?

Q2. How do I develop my style so I can judge what GRABS ME?

Well, that’s personal. As far as how to analyse stocks & spotting alpha generating “patterns” are concerned, we’re working on that and will keep you updated.

In a more immediate effort to help elevate your understanding with regards to specific sectors, we’ve been conducting some online sessions recently - Housing finance, power sector (T&D) & Contrarian Investing Workshop.

Similarly, we have an upcoming session on the DEFENCE sector.

Join us? Find out what the hype is about and get a balanced view on the topic by signing up for the session.

Signup link: https://rzp.io/rzp/AlphawealthDefence

Hope the step-by-step is useful. Let me know if you have questions.

Rahul Rao, CFA

DISCLAIMER:

Note: We have relied on data from www.Screener.in, www.tijorifinance.com and company released documents throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.

The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.

Rahul Rao has been Investing since 2014. He has helped conduct financial literacy programs for over 1,50,000 investors. He helped start a family office for a 50-year-old conglomerate and worked at an AIF, focusing on small and mid-cap opportunities. He evaluates stocks using an evidence-based, first-principles approach as opposed to comforting narratives.

Disclosure: The writer or his dependents MAY HOLD shares in the company/stock discussed in the article.

The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.