Super growth portfolio – a study of Indian stocks

ABSTRACT

Long-term investors aspire to earn extraordinary returns with a minimum risk exposure. This paper examines different strategies and carefully constructs a class of portfolios using constituent stocks of the NIFTY500 index to earn the best risk-adjusted returns for long-term investors. We identify a simple and profound strategy that generated extraordinary returns over more than two decades in the past. Further, we also show that this strategy produces superior performance in different market states and investment periods. Our result highlights the below par performance of value-investment style. This work has direct implications for portfolio managers and retail investors looking to invest in the Indian market.

KEYWORDS:

• Invest style
• growth investment
• value investment
• portfolio management

JEL CLASSIFICATION:

• G10
• G11
• G12

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Refer http://faculty.iima.ac.in/~iffm/Indian-Fama-French-Momentum/ (last accessed on 16.05.2020)

2. See https://web.archive.org/web/20110911102206/http://www.buffettandbeyond.com/whatiscleansurplus.html

3. Here, G1, G2, G3, G4, and G5 represent the GPA quintiles and BM1, BM2, BM3, BM4 and BM5 represent the BM quintiles respectively, in ascending orders of their respective ratios.

4. The Sharpe and Sortino ratios are both measures of risk-adjusted returns. The Sharpe ratio measures the total returns of the portfolio above the risk-free rate per unit of standard deviation (or risk). The Sortino ratio is the excess returns over the risk-free rate per unit of downside standard deviation (or downside risk). Here, we calculate the ex-post or historic Sharpe ratio using the revised formula for Sharpe ratio as suggested by Sharpe (1994). The ex-post Sortino ratio is calculated using the same approach since it is a variant of the Sharpe ratio dealing with downside risk instead of total risk.

5. See https://www.valueresearchonline.com/stories/46744/how-much-should-you-trust-the-price-to-book-ratio/