Low Debt Quality on India: 14.05% CAGR and a -2.02% Down Capture Over

We ran a low-debt quality screen on BSE and NSE stocks from 2000 to 2025. D/E below 0.5, Piotroski F-Score of 7 or higher, annual rebalance in July. The result was 14.05% CAGR in Indian Rupees, against a 7.83% SPY benchmark. That's +6.22% annual excess return over 25 years. The total return was 2,578%. But the number that stands out is the down capture: -2.02%. When SPY falls, this portfolio on average goes up. In 2008, SPY lost -26.1%. This portfolio returned +16.4%.

Contents

1. Method
2. The Signal
3. The Screen (SQL)
4. What We Found
5. 25 years. 14.05% CAGR. Six times the total return of SPY.
6. Annual returns (July-to-July, INR vs SPY USD)
7. 2000-2004: Five years of cash
8. 2005-2009: Entry into a maturing market
9. 2010-2012: The reset
10. 2013-2016: The quality premium reasserts
11. 2018-2019: The hard years
12. 2020-2023: Exceptional recovery and sustained alpha
13. Currency Warning
14. Why India Works for This Strategy
15. Backtest Methodology
16. Limitations
17. Takeaway
18. Part of a Series
19. Run This Screen Yourself

India is the standout result from our global low-debt quality study. No other exchange came close on raw excess return.

Method

• Data source: Ceta Research (FMP financial data warehouse)
• Universe: BSE + NSE (combined), market cap > ₹20B (~$240M USD)
• Period: 2000-2025 (25 years, 25 annual periods)
• Rebalancing: Annual (July), equal weight all qualifying
• Benchmark: S&P 500 Total Return (SPY, USD)
• Cash rule: Hold cash if fewer than 10 stocks qualify
• Data lag: 45-day point-in-time lag on financial statements

Annual returns are in Indian Rupees. The benchmark (SPY) is in US Dollars. This creates an inherent currency mismatch. See the currency section below for the adjustment.

Annual returns are measured July-to-July. The year label is the start of the 12-month holding period.

The Signal

Two filters. Both must pass.

Filter 1: Low Leverage

D/E < 0.5 from annual FY financial statements. India's corporate sector carries significant debt in many industries. Resource companies, infrastructure conglomerates, and state-adjacent businesses often run D/E above 1.0. This filter cuts them out and concentrates the portfolio in companies with conservative capital structures.

Filter 2: Piotroski F-Score >= 7

Nine binary factors across profitability, cash quality, and efficiency. Score 7 or more to qualify.

Low-debt Indian companies that score 7+ on Piotroski tend to be well-run family businesses, technology services firms, and consumer staples companies with genuine operational discipline. They're not resource companies or leveraged infrastructure plays. The two filters together create a concentrated, high-quality selection from a market that's otherwise quite heterogeneous.

The Screen (SQL)

The live screen uses TTM proxies as a Piotroski approximation. Computing full Piotroski requires year-over-year FY comparisons. This SQL uses ROE, operating margin, and interest coverage as proxies. Use it for candidate identification, not for replicating the exact backtest signal.

SELECT
    p.exchange,
    r.symbol,
    p.companyName,
    p.sector,
    ROUND(r.debtToEquityRatioTTM, 3) AS de_ratio,
    ROUND(k.returnOnEquityTTM * 100, 1) AS roe_pct,
    ROUND(r.operatingProfitMarginTTM * 100, 1) AS opm_pct,
    ROUND(r.interestCoverageRatioTTM, 1) AS interest_coverage,
    ROUND(k.freeCashFlowYieldTTM * 100, 2) AS fcf_yield_pct,
    ROUND(k.marketCap / 1e9, 2) AS mktcap_b
FROM financial_ratios_ttm r
JOIN key_metrics_ttm k ON r.symbol = k.symbol
JOIN profile p ON r.symbol = p.symbol
WHERE r.debtToEquityRatioTTM >= 0
  AND r.debtToEquityRatioTTM < 0.50
  AND k.returnOnEquityTTM > 0.08
  AND r.operatingProfitMarginTTM > 0.08
  AND r.interestCoverageRatioTTM > 5.0
  AND p.isActivelyTrading = true
  AND k.marketCap > 20000000000
  AND p.exchange IN ('BSE', 'NSE')
ORDER BY de_ratio ASC
LIMIT 30

Run this query on Ceta Research

What We Found

25 years. 14.05% CAGR. Six times the total return of SPY.

The down capture of -2.02% is the defining number. Negative down capture means the portfolio, on average, moved in the opposite direction from SPY during SPY's down periods. This isn't because of hedging or inverse positions. It's because Indian equities and US equities were often driven by different factors, and the quality filter selected companies insulated from the macro forces hitting US markets.

Max drawdown of -17.99% vs SPY's -36.27% is also striking. The portfolio lost less than half of what SPY lost at its worst.

Annual returns (July-to-July, INR vs SPY USD)

2000-2004: Five years of cash

The strategy held cash for the first five years. India's large-cap universe was small in the early 2000s. At the ₹20B market cap threshold, too few companies passed both D/E < 0.5 and a Piotroski score of 7 or higher. The portfolio needed at least 10 qualifying stocks to invest. It couldn't find them until 2005.

This is honest accounting. The 14.05% CAGR is computed across all 25 years, including those five dead years. The active return period is 2005 onward.

2005-2009: Entry into a maturing market

The moment India's quality universe crossed the 10-stock threshold, the returns were explosive. 2005: +57.6%. 2006: +36.4%. India's economic liberalization in the early 2000s was producing a first wave of genuinely high-quality, conservatively financed companies. They were cheap. The screen found them just as the re-rating started.

2007 was a brief setback: -6.8% in local currency. SPY also fell -13.7% that period. The smaller drawdown was consistent with the quality profile.

Then 2008: portfolio +16.4% while SPY lost -26.1%. A 42.6 percentage point gap. This is the most dramatic single-period illustration of why negative down capture matters. India had its own economic dynamics that year. The quality companies in the portfolio were domestically oriented, conservatively financed, and not exposed to the US credit market. They didn't just hold up. They went up while the S&P 500 collapsed.

2010-2012: The reset

After the strong 2009 recovery, the portfolio had three quieter years: +3.6%, +2.3%, +8.5%. SPY beat it in 2010 and 2012 by wide margins. This was a period of slower Indian growth and re-rating of developed market assets. The strategy didn't protect in either direction here. It just trod water while SPY ran.

2013-2016: The quality premium reasserts

2013 through 2016 produced four years of solid outperformance: +39.4%, +44.5%, +8.8%, +21.9%. The 2014 result (portfolio +44.5% vs SPY +7.4%, a 37-point gap) was driven by a broad re-rating of high-quality Indian equities. The combination of improving corporate governance, rising domestic consumption, and foreign institutional investor interest in India's quality companies created a sustained tailwind.

2018-2019: The hard years

2018 and 2019 were the strategy's worst stretch: -9.7% and -9.2% in INR. SPY gained +10.9% and +7.1% over those same periods. The underperformance was 20-16 percentage points, respectively.

India's economy faced real headwinds: the NBFC (non-bank financial company) crisis in 2018 disrupted credit markets. The IL&FS collapse caused contagion across Indian mid-caps. Even conservatively financed companies weren't immune as market sentiment turned. 2019 continued the pressure as global growth fears mounted.

2020-2023: Exceptional recovery and sustained alpha

The recovery was sharp: +59.4% in 2020, +31.7% in 2022, +54.2% in 2023. Three of the four years from 2020 to 2023 delivered returns above 30%. India's domestic consumption story, manufacturing policy (PLI schemes), and deepening equity market participation all contributed. The quality filter was positioned exactly in the sectors benefiting most.

2023 was the standout: +54.2% in INR vs +24.6% for SPY. A 30-point excess return. Low-debt Indian consumer, technology, and pharmaceutical companies compounded strongly through the year.

Currency Warning

Returns are in Indian Rupees. SPY is in US Dollars. These are different currencies. Direct comparison overstates alpha for a USD-based investor.

The INR moved from roughly ₹45/USD in 2000 to roughly ₹85/USD in 2025. That's approximately 89% cumulative depreciation, or roughly 2.5% annual drag on USD-converted returns.

Even after the currency adjustment, the alpha is real. Roughly 3-4% annual outperformance in dollar terms. For an Indian investor who never needed to convert back to USD, the full 6.22% excess is the lived experience.

Why India Works for This Strategy

Three structural reasons.

Conservative family businesses. A large share of India's listed companies are family-controlled. These businesses prioritize survival over leverage. They avoid debt not because interest rates are low, but because founders don't want to give up control through distress. The D/E < 0.5 filter selects disproportionately for this type of company.

Quality premium in emerging markets. In a market with higher macro volatility, operational discipline matters more. A company with clean cash flows, improving margins, and no debt stress has a larger competitive advantage in India than in a stable developed market. The Piotroski filter captures exactly these companies.

Low correlation to US macro. India's economic cycles don't align with the US. The domestic consumption and infrastructure buildout that drives Indian corporate earnings is largely independent of US monetary policy and US economic conditions. The negative down capture reflects this structural decoupling, especially before the period when India's equity market became more integrated with global flows (roughly post-2014).

Backtest Methodology

Limitations

Currency mismatch. INR returns compared to USD benchmark systematically overstates alpha for USD-based investors. The currency-adjusted excess return is approximately 3-4% annually, not 6.22%. Both numbers are real depending on who's asking.

Five years of cash. The 14.05% CAGR includes five years of zero return at the start. For investors who started in 2005 (when the strategy first became active), the effective track record is 20 active years. The compounding is still strong, but the cash period is a real constraint early on.

Liquidity. The ₹20B market cap threshold captures mid-cap Indian stocks. Some names that pass the screen may have thin trading volumes on BSE or NSE. The backtest assumes execution at closing prices with no slippage. Real-world liquidity costs on Indian mid-caps can be material.

Survivorship bias. Exchange membership uses current company profiles, not historical. Indian exchanges had different compositions in the early 2000s. Companies that delisted due to financial distress aren't captured, which likely biases results upward.

India-specific risks. Regulatory changes, accounting scandals (there have been several among Indian mid-caps), and concentrated ownership by promoters are risks the Piotroski screen can't fully detect. A company can pass all nine Piotroski factors while having governance issues that surface later.

No transaction costs. India's Securities Transaction Tax and capital gains taxes aren't modeled. These reduce realized returns, particularly for mid-cap positions with higher spreads.

Takeaway

India is the strongest result in our global Low Debt Quality study. 14.05% CAGR, +6.22% excess vs SPY (in INR), -2.02% down capture, and -17.99% max drawdown against SPY's -36.27%. No other exchange produced this combination of high alpha and low drawdown.

The results aren't an accident. India's corporate landscape has a deep pool of conservatively financed, well-run companies that the Piotroski filter is designed to find. The economic cycle's low correlation with the US added another layer of protection during US bear markets.

The limitations are real: currency depreciation cuts about 2.5% from the annual return for USD investors, the early cash years delay compounding, and liquidity on some mid-cap names is thin. But after adjusting for all of that, the alpha is still there. Roughly 3-4% annually in dollar terms, with substantially lower drawdowns than holding SPY. For long-horizon investors with access to Indian equities, the case is clear.

Part of a Series

This post is part of our Low Debt Quality global exchange comparison. We ran the same strategy across 15 exchanges worldwide: - Low Debt Quality on US Stocks (NYSE + NASDAQ + AMEX) - 7.09% CAGR, -29.77% max drawdown, 82.83% down capture - Low Debt Quality on Canadian Stocks (TSX) - +1.33% excess - Low Debt Quality on Swedish Stocks - +1.14% excess - Low Debt Quality on Swiss Stocks - best Sharpe in the study (0.429) - Low Debt Quality on German Stocks (XETRA) - European result - Low Debt Quality on UK Stocks (LSE) - LSE results - Low Debt Quality: Global Exchange Comparison - all 15 exchanges

Run This Screen Yourself

The TTM screen SQL above runs directly on Ceta Research. Filter by BSE and NSE to see which Indian stocks pass today. No setup required.

The full backtest code (Python + DuckDB) is on GitHub.

Run It Yourself

Explore the data behind this analysis on Ceta Research. Query our financial data warehouse with SQL, build custom screens, and run your own backtests across 70,000+ stocks on 20 exchanges.

Data: Ceta Research, FMP financial data warehouse. Universe: BSE + NSE. Annual rebalance (July), equal weight, 2000-2025. Returns in INR unless noted.