Profitability-focused investment strategies outperform Nifty 50, study shows
Nifty 50 index, a study by Capitalmind Financial Services has found, underscoring the potential of factor investing in the country’s equity market.
The study, which analyzed data from July 2007 to the present, showed that a Rs 100 investment in a profitability-factor portfolio would have grown to Rs 1,765, delivering an annualized return of 17.9%. In contrast, the same investment in the Nifty 50 would have yielded Rs 810, with an annualized return of 12.8%.
Factor investing, a quantitative strategy that selects stocks based on attributes like profitability, momentum, and low volatility, is gaining traction among global investors. The Capitalmind study found that companies ranking high on profitability metrics—such as gross profits to assets and return on equity—tend to have strong competitive advantages and lower dependence on external capital, making them more resilient in volatile markets.
Despite its global adoption, factor investing in India remains underutilized, the PMS firm said. «Of the Rs 30,778 crore invested in style-based passive mutual funds, only Rs 1,817 crore is allocated to Profitability or Quality styled funds. This is a curious disconnect, given the demand for Quality funds in the active funds category. Our analysis suggests that high valuations, which active fund managers have the flexibility to counteract, may be a key factor,» said Capitalmind.
The study found that over 5-year rolling periods, a profitability-focused strategy outperformed the Nifty 50 index 86% of the time, with a median
