NIFTY 50 TOP 10 - BIG WILL KEEP GETTING BIGGER!

 DESCRIPTION

NIFTY 50 - TOP 10 - BIG WILL KEEP GETTING BIGGER.

Nifty50 is the benchmark large cap Index in India that tracks the top 50 stocks by Free float market capitalization.

This is a passive investment strategy designed especially for people who are unhappy with index funds/ETF's and crave for higher returns from the same universe with similar/lower risk profile/volatility. 

Hence, don't expect great returns here, if we sustainably beat the benchmark by 2-5% in CAGR terms over a 3-5 year block, that would mean it's a very successful strategy.

In this strategy we will invest in the top 10 weighted stocks of the Nifty 50 index and hold them for an year (Annual Rebalance), it's as simple as that.

So, we will not care if ITC's Cigarette volumes were negative or HDFCBANK reported less than 20% growth.

We will simply put the money by looking at the December end Factsheet/Monthly report and Invest in the top 10 weighted stocks at that time.

(I am a curious person from the beginning, so I would also like to see what do the stocks weighed 10-20, 20-30, 30-40, 40-50 do over many years. If there are any surprises, I will update about it later.)

Now, let's look at how I derived the theme :-

BIG WILL KEEP GETTING BIGGER

In the recent years, we've seen that usually the big have become bigger.

Let it be companies in sectors like BFSI, Paints, Adhesives, Home building products,etc. in India or Megacaps like Amazon, Facebook, Google or Microsoft. 

Let it be in politics, stock markets, unorganised sectors turning into organised like  mobile phones, etc. we have seen the big get bigger, it could be through market share gains or the industry growing at a faster rate

So, these are some reasons behind the whole theme of this strategy.

Now let's look at the implementation part of the strategy.

IMPLEMENTATION

I will sum up the implementation process of the strategy in simple bullet points so that it will be much easier to understand.

The strategy follows a "Calendar year" rebalance strategy, so we enter on Jan 1st and Rebalance the Portfolio on Jan 1st of the following year.

On Jan 1st, download the factsheet/monthly report as on Dec 31st published by niftyindices.com, look at the top 10 weighted stocks of the index and invest an equal amount in all of them (10% allocation to each).

That's it. Now forget about it, don't open your demat account again for an year. 

After an year, as and when the December end Monthly report is published, open your account, look for any changes in the stock list and make the necessary changes. Just keep repeating this and you'll be well off.

If you have an account with any new age discount/full service brokers, then take a look at smallcase app, create a Portfolio and invest at a single click. Rebalancing is also made easier here.

Therefore you need a demat account, December month end Factsheet/Monthly report of the index and just 5 minutes of time in an year in front of your demat account.

The most important thing that you need to remember is that it's a passive investment strategy and is aimed at showing a prudent alternative to Index funds/ETF's.

Hence, don't expect great returns compared to the benchmark but outperforming the index sustainably by 3-5% year-on-year can be expected.

I have done a 18 year backtest of the strategy and the results were very satisfactory coupled with similar volatility to the index.

Let us look at the performance of the strategy for the last 18 years.

I will present the performance part of the strategy in two parts :-

 18 year graphical NAV compared to the benchmark indexed to 100.

The graphical representation of yearly performace.

The performance of the strategy is adjusted for dividends/bonus/split and demergers (exact swap ratio)but does not take Rights issue into account & dividends are not reinvested in the strategy, but are considered as returns. So, if one wants to reinvest dividends, then the returns can be higher by 1-2% over the 18 year period.

Here is a table depicting the yearly data from 2004 till date compared to the benchmark indexed to 100 :-

Rs. 100 invested in the Nifty 50 Top 10 has become Rs. 1138.99 till date, that is a CAGR of 14.5%. whereas Rs. 100 invested in Nifty 50 has become 673.09 at a CAGR of 11.1%.

Here is the yearly performance table of the strategy compared to the benchmark :-

Here is the graphical representation:-

The best year for the strategy was 2009-2010 and the worst year was 2008-2009.

The strategy delivered double digit returns more than 65% of times compared to less than 60% for the benchmark.

CONCLUSION

The strategy has done really well compared to the benchmark. An outperformance of 3.5% for the last 18 years is really good for a Passive investment strategy where you need only 5 minutes in front of your DEMAT account once in 365 days.

If one wants to execute the strategy in smallcase app, then the SIP and the rebalance option becomes simple and very sophisticated there.

Anyone who is not happy with their Largecap mutual funds apart from Index funds can also try to park some of their money here.