TESTING PETER LYNCH'S STOCK SCREENING CRITERIA ON BSE 500: PORTFOLIO PERFORMANCE AND RISK-RETURN OUTCOMES

Abstract

Purpose:
This study investigates investment philosophy of widely respected of Peter Lynch which can be systematically applied to the Indian equity market. His “growth at a reasonable price” (GARP) approach is tested on BSE 500 companies to assess its effectiveness in delivering better portfolio performance as compared to benchmark index i.e. Sensex.

Methods:
Daily historical data from 2010 to 2026 were collected for BSE 500 constituents. Ten screening rules like valuation, growth, leverage, liquidity, and shareholder returns were used for screening of stocks with the use of a binary scoring system. Top-ranked stocks were selected for portfolio formation and for analysing their performance which is then compared with benchmark and robustness was validated through Monte Carlo simulations along with rolling return analysis for checking its consistency across multiple investment horizons.

Findings:
Lynch-based portfolios outperformed the benchmark across most risk profiles. The maximum Sharpe portfolio performed the best earning a 12.56% retune with highest Sharpe ratio, significantly exceeding the Sensex. The minimum variance portfolio offered balanced outcomes for conservative investors, while equal weighting produced moderate but consistent gains. Monte Carlo results confirmed the robustness of these findings.

Contribution and Practical Implications:

This study contributes by systematically translating stock screening model of Peter lynch into structured and testable framework along with validated in Indian market. By using binary scoring model based on Lynch’s criteria’s this study proves that investors can his selection model superior returns and best risk adjusted performance as compared to Sensex. Also, by integrating screening model with portfolio optimisation and validating it through Montecarlo simulation and rolling returns this study bridges the gap theory and practice.