Categories: Postweek Reports

Beat the market – smartly

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The best of both – Active & Passive Investing

The risk of investing in equities is measured via beta. Beta measures volatility, which is the fluctuation in the investment value, compared to benchmark indices like Nifty. Higher the beta, the riskier the investment.

Smart Beta strategies aim to increase the return potential of the investment without increasing risk. Such strategies take the same amount of risk as the benchmark indices but increase the return potential by using better screening or weighting criteria.

Quality – Smart Beta smallcase provides investors with an opportunity to invest in high-quality businesses. The strategy is implemented by screening for companies that match specific fundamental criteria that indicate the quality of the company. The strategy allocates weights to the stocks with the aim of maximizing the Sharpe ratio.

Low Risk – Smart Beta smallcase provides investors with an opportunity to exploit the phenomenon of the low-risk anomaly – a phenomenon where low-risk stocks have consistently outperformed high-risk stocks. This smallcase uses a quantitative methodology that decides the weights of the stocks in such a manner that diversification is maximized.

Dividend – Smart Beta smallcase contains stocks which have been increasing their dividends on a consistent basis, weighted in a manner to minimise the volatility of the smallcase.

Over the previous 5 years, all these smallcases have beaten comparable index Nifty’s performance by a substantial margin.

IT spending could hit $94 bn in 2020

According to a report released by global research and advisory firm Gartner, information technology (IT) spending in India is set to rise by 6.6% to $94 billion in 2020 from $88.5 billion in 2019.

Total software spending driven by enterprise application software is expected to grow by 15.2% to $7,354 million. IT Services segment is expected to grow by 13.4% to $17,897 million.

Devices segment, which is the largest sub-segment, declined by 2.4% in 2019. This segment is expected to grow by 6.3% to $35,468 million. IT Spending is set to increase over the next 2-3 years as the economy benefits from GST and other policies that have been introduced to support consumer spending.

Over the last 3 years, the IT Tracker smallcase has returned 91.8% compared to Nifty returns of 46.0%.

Markets update

Benchmark indices closed a volatile trading week on a mixed note. While Nifty closed down 0.11% at 11,895.5, Sensex closed up 0.08% at 40,356.7.

This week, Moody’s Investors Service cut India’s economic growth forecast to 5.6% for the calendar year 2019, saying government measures do not address the widespread weakness in consumption demand. Last month, Moody’s had slashed India’s economic growth forecast for 2019-20 fiscal to 5.8% from an earlier estimate of 6.2%.

Industrial output in India dropped 4.3% year-on-year in September 2019, below market expectations of a 2% fall. Wholesale prices in India rose by 0.16% year-on-year in October 2019. Retail price inflation rate climbed to 4.62% year-on-year in October 2019, the highest in over a year. The number was above market expectations of 4.25%.

Naveen K R @

Investment Associate at smallcase Research.

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Tags: beta dividend smart beta gst IT sector it tracker low risk anomaly low risk smart beta nifty quality smart beta sector trackers sensex sharpe ratio smart beta

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