The Philosophy Behind the Growth & Income Model smallcase

The True Purpose of a Business

What is the primary purpose of a business? It isn’t building great products. It isn’t ensuring employee welfare. It isn’t chasing market share.

These are all second-order outcomes. As economist Milton Friedman put it, the primary purpose of a business is to generate profits for its owners and shareholders.

A profitable business is more likely to offer a strong product or service, positively impact society, and build a loyal customer base. From an investor’s point of view, a profitable company is worth owning because profits drive returns.

Profits Drive Stock Prices, But It’s Not That Simple

At first glance, investing sounds simple: find profitable businesses and invest in them. But seasoned investors know that identifying the right companies isn’t always easy.

This is why many investors turn to disciplined strategies based on fundamental metrics, approaches that have stood the test of time across different markets and cycles.

One such time-tested idea is to invest in companies with strong and improving earnings, a key driver of long-term stock price appreciation.

The Growth & Income Approach: Adapting Timeless Principles

We’ve applied these core principles to create the Growth & Income Model smallcase, a portfolio designed for investors who want the best of both worlds: earnings growth and income generation.

Here’s how the strategy works:

Earnings Growth: We screen for companies with consistently high earnings growth.
Quality Metrics: Stocks must have ROE above the sector average, signalling superior capital efficiency.
Cash Flow Focus: To avoid earnings manipulation, we use the Price to Operating Cash Flow (POCF) ratio instead of the conventional PE ratio. Since cash is harder to fake, this ensures better accounting hygiene.
Attractive Valuation: POCF also helps us identify stocks that are reasonably priced.
Dividend Growth: Only companies that are increasing dividends make the cut — a sign of balance sheet strength and investor alignment.

A Smarter Way to Invest in Profitable Businesses

The Growth & Income smallcase is built on the idea that strong earnings and disciplined capital allocation create long-term shareholder value.

It combines the principles of value and growth investing into a single, diversified portfolio tailored for Indian markets, making it a smart choice for investors who want to back businesses that deliver both performance and payouts.

Disclaimer: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of a SEBI recognized supervisory body (if any) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

The content in these posts/articles is for informational and educational purposes only and should not be construed as professional financial advice and nor to be construed as an offer to buy /sell or the solicitation of an offer to buy/sell any security or financial products.Users must make their own investment decisions based on their specific investment objective and financial position and using such independent advisors as they believe necessary. Windmill Capital Team: Windmill Capital Private Limited is a SEBI registered research analyst (Regn. No. INH200007645) based in Bengaluru at No 51 Le Parc Richmonde, Richmond Road, Shanthala Nagar, Bangalore, Karnataka – 560025 creating Thematic & Quantamental curated stock/ETF portfolios. Data analysis is the heart and soul behind our portfolio construction & with 50+ offerings, we have something for everyone. CIN of the company is U74999KA2020PTC132398. For more information and disclosures, visit our disclosures page here.