A Hybrid Fuzzy MCDM Approach for Security Analysis and Portfolio Optimization

Abstract

This study evaluates the key financial criteria influencing investment decisions in the Indian stock market using the Fuzzy Analytic Hierarchy Process (FAHP). Data were collected from the top 10 companies listed on the Bombay Stock Exchange (BSE), and expert judgments were obtained from two highly experienced professionals: an investor and a professor of finance, each with more than 30 years of expertise. Six financial criteria were considered: Return on Equity (ROE), Earnings Per Share (EPS), Price-to-Earnings (P/E) Ratio, Debt-to-Equity (D/E) Ratio, Current Ratio, and Return on Assets (ROA). The FAHP model identified ROE as the most significant factor, followed by EPS, P/E Ratio, D/E Ratio, and ROA, while the Current Ratio ranked lowest. The findings highlight that profitability-related measures dominate investor preferences, whereas liquidity indicators exert minimal influence. This research provides valuable insights for investors by emphasizing the prioritization of profitability and growth metrics over short-term solvency in portfolio selection.