Strategy: Smart beta - optimized CNX Nifty begins CY2015 on a strong note ::Kotat Securities

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Smart beta—optimized CNX Nifty begins CY2015 on a strong note. The eXtractorbased optimized CNX Nifty gained 7.1% in January, outperforming the benchmark by 0.75%—sentiment and growth were the two prevalent investment factors. For February, the portfolio is overweight on information technology, materials and utilities. WPRO, COAL and IIB are the biggest additions to the portfolio.

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Investment-style guide—growth and sentiment reign supreme in January Growth continues to outperform value in January (see Exhibit 1) even as the correlation between the two investment schools of thought climbs back to long-term averages. Exhibit 2 shows the performance of the various investment styles specified in the eXtractor framework. Sentiment and growth were the best-performing investment styles In January. iQ, the composite factor, was assisted by TTMT, HCLT and SUNP showing strong gains (see Exhibit 3). APNT and HDFC were the best performers in the sentiment portfolio. The February 2015 portfolios, based on various investment styles, are highlighted in Exhibit 4. AXSB has been added to the iQ portfolio, based on sentiment and momentum. Smart beta—optimized portfolio outperforms CNX Nifty by 75 bps in January The optimized CNX Nifty portfolio gained 7.1% in January, outperforming the CNX Nifty by 75 bps. This is the second consecutive month of outperformance (seen in Exhibit 5). TTMT, BPCL and HDFCB were the best performers in the portfolio (Exhibit 6) and have strongly contributed to the gains (see Exhibit 7). Optimized CNX Nifty February portfolio—WPRO, COAL and IIB are the biggest additions The February portfolio has six new additions, taking the total companies in the portfolio to 26. Exhibit 8 showcases the February portfolio. TTMT, INFO and AXSB demand the highest allocations; lowest exposures are to RIL, PNB and HNDL. WPRO, COAL and IIB were the biggest additions. These stocks were favored over CAIR, LPC and SUNP (Exhibit 9). Finding value—merging eXtractor with the DCF-based Whizdom framework We merge results from our decision-support frameworks—eXtractor and Whizdom—to identify value opportunities in the broader universe. Exhibit 10 lists stocks that score well on the factor model (eXtractor) and the DCF-based framework (Whizdom), which identifies implied growth being factored into current market prices. NACL, NMDC, ONGC and CAIR are the biggest value opportunities within the broader universe.

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily06022015mh.pdf