red-flag-analysis

name	red-flag-analysis
description	Identify and score red flags in NSE/BSE stock analysis: governance, debt, valuation, earnings quality, sector, liquidity, regulatory, promoter, technical, and news-related risks.

Red Flag Analysis

A good stock report must say what can go wrong.

Tools

USE these tools in this order:

1. NSE/BSE exchange filings — primary source for regulatory actions, auditor changes, pledge disclosures, and related-party transaction details.
2. Groww MCP holdings tool — for promoter pledge status and shareholding pattern changes quarter-on-quarter.
3. Company annual report — for auditor's report, related-party transactions, contingent liabilities, and CFO/comparator notes.
4. Finance portals (Screener, Trendlyne) — for multi-year debt ratios, interest coverage, and CFO vs PAT trends. Use these to verify quantitative triggers.
5. Business news (Mint, ET) — for regulatory actions, management exits, and litigation updates.
6. Web search — only for unresolved legal cases or SEBI/RBI actions not yet on exchange filings.

Risk Areas

• Governance: promoter pledge, auditor issues, related-party transactions, regulatory actions, repeated dilution.
• Debt: high leverage, weak interest coverage, refinancing pressure, falling credit rating.
• Earnings quality: cash flow weaker than profit, receivables spike, inventory build-up, one-time gains.
• Valuation: priced for perfection, premium unsupported by growth, peak-cycle earnings.
• Business: customer concentration, commodity exposure, disruption, weak market share, execution risk.
• Sector/macro: rates, currency, crude, policy, regulation, demand cycle.
• Liquidity: low volume, wide spreads, small free float.
• Technical: major support breakdown, distribution volume, long-term moving average weakness.
• News: unresolved litigation, penalties, management exits, adverse filings.

India-Specific Hard Triggers

These are binary disqualifiers regardless of other scores. If any trigger is active, the stock should be rated at least "High risk":

Trigger	Threshold	Why It Matters
Promoter pledge	>20% of promoter holdings pledged	Governance and margin-call risk
Auditor qualification	Any qualified audit or emphasis of matter	Earnings may be materially misstated
Auditor change without explanation	Sudden change in auditor	Possible disagreement on accounting
Related-party transaction growth	RPTs growing faster than revenue	Potential tunneling
CFO resignation	CFO leaves within 12 months of results	Usually signals internal concern
Debt/EBITDA	>4x for non-financial companies	Stressed balance sheet, refinancing risk
Interest coverage	ICR < 1.5x	Cannot service debt from operations
CFO vs PAT ratio	CFO/PAT < 0.7 for two consecutive years	Earnings are not cash-backed
Promoter pledged shares increase	Any material increase quarter-on-quarter	Margin call risk, governance signal
SEBI action / regulatory scrutiny	Any SEBI or RBI enforcement action	Binary regulatory risk

Score

Use a 0-10 red flag score:

• 0-2: Low visible red flags
• 3-5: Moderate risk; monitor closely
• 6-8: High risk; position sizing or avoidance needed
• 9-10: Severe red flags; avoid unless special situation is clearly understood

Output

## Risks & Red Flags
- Red Flag Score: X/10
- Governance risk: ...
- Financial risk: ...
- Valuation risk: ...
- Business/sector risk: ...
- Technical risk: ...
- Thesis breakers: ...

Be direct. Do not soften serious governance, debt, or earnings-quality issues.