| 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:
- NSE/BSE exchange filings — primary source for regulatory actions, auditor changes, pledge disclosures, and related-party transaction details.
- Groww MCP holdings tool — for promoter pledge status and shareholding pattern changes quarter-on-quarter.
- Company annual report — for auditor's report, related-party transactions, contingent liabilities, and CFO/comparator notes.
- Finance portals (Screener, Trendlyne) — for multi-year debt ratios, interest coverage, and CFO vs PAT trends. Use these to verify quantitative triggers.
- Business news (Mint, ET) — for regulatory actions, management exits, and litigation updates.
- 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.
