Every sector has its own risk, there is no single sector in Indian stock market which is absolutely safe. However, if you want to make better returns with lower volatility, then you have to focus on stocks that provides you better returns with lower standard deviation.
One of the prime focus investor should focus on is volatility of your investment portfolio. If we choose to invest in stocks based on momentum or other factors, we tend to choose the stocks that are likely to move up much higher based on recent past movements but these stocks are highly volatile and when momentum is lost, it drops down significantly.
For example, stocks like Rain Industries was one of the hottest stock, as it kept on moving higher and higher.
But what has happened when the momentum is lost in the stock, it faces severe selling pressure which pushes the stocks lower and lower. What we call as the best stock today, can be the worst stock tomorrow.
So the solution is look for stocks that are more stable, that doesn’t crack so easily and also continues to grow slowly and steadily. Stocks like HUL, where the growth is consistent which in turn reflects in its share price. But how do we keep track of such stocks or how do we short list such stocks and stay invested in it?
The key for that is volatility and returns.
Let’s look at the historical data of Nifty 50, the average returns is around 11.03% where as the standard deviation is 24.02%
NSE India has recently introduced strategy indices,
Strategy indices are designed on the basis of quantitative models / investment strategies to provide a single value for the aggregate performance of a number of companies.
It includes multiple indices based on various quantitative models, we analyzed all of these indices to find which index/group of stocks that provides the highest returns with lowest volatility. So that people who are looking for low risk with better returns can focus on that index alone and invest in it, so that your capital is much safer than investing in broader index like Nifty 50.
Nifty Growth sector 15 has the lowest volatility of all the indices.
Even on returns wise also it has provided very good returns since inception year 2009.
If I compare the volatility of Nifty Growth sector 15 with other prominent index like Nifty 50, Nifty 500, Small cap and Mid cap, the Nifty Growth sector has lowest volatility.
Listed below are the stocks that belongs to Nifty Growth 15 sector. And here’s how the stock selections are done. Half yearly once re-balancing happens.
- a. Securities having derivatives available on them, from selected sectors for base period (i.e. July-December 2008) are identified.
- b. The securities are then ranked as per Free float market capitalization and top 50% of the securities are carried forward for further scrutiny.
- c. The securities identified in above steps are then ranked by EPS growth frequency.
- d. Any security which had negative EPS for base review period is not considered.
- e. Top 15 companies are selected as base composition. Sector review is carried out once in 2 years whereas, stock selection is reviewed semi-annually
Even if we compare the track record for this year, Nifty Growth 15 sector has performed better than other Indices.
Year to date,
Nifty small cap index has given negative returns of -20%
Nifty 50 index has given flat returns of 1.7%
whereas Nifty Growth 15 sector index has given returns of +3.14%
So even during times of higher volatility environment like this, these 15 stocks has outperformed and provided better returns with least volatility. When you focus on this sector, we would not panic at times of sell off, as we would not witness much downside on the Nifty Growth 15 sector.