Factor Investing in India: Do "Smart Beta" Indices Outsmart Nifty 50 and Midcap 150? 24Nov2025
(The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)
(Check P.S. dated 24Mar2026 with trailing and calendar year returns of smart beta indices; and Check P.S. dated 26Nov2025, at the end of the blog, for trailing returns of passive funds linked to "smart beta" indices)
Explore how the so-called smart beta indices have performed over the years in comparison to broader indices, like, Nifty 50 and Nifty Midcap 150 indices.
Smart beta indices sit between passive and active investing. Unlike traditional market-cap-weighted indices such as the Nifty 50 or Nifty Midcap 150, the so-called smart beta indices use rule-based, transparent methodologies focused on specific factors—characteristics historically linked to better risk-adjusted returns.
In India, NSE has developed a wide range of Nifty Smart Beta / Factor Indices. This is a brief analysis of some of the smart beta indices.
1. Key Factors Used in Indian Smart Beta Indices:
1 Quality: Measures financial strength—high return on equity, low debt and stable earnings.
Nifty indices: Nifty 200 Quality 30 and Nifty Midcap 150 Quality 50.
2 Value: Focuses on undervalued stocks using metrics like P/E ratio, P/B ratio and dividend yield.
Nifty indices: Nifty 500 Value 50 and Nifty 200 Value 30.
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Related articles:
Nifty Midcap 150 Quality 50 Index: Has Quality Lost Its Edge? 10Aug2025
Decoding the Nifty Midcap 150 Quality 50: A Midcap Strategy Built on Fundamentals 07Aug2025
Passive Titans of India: The Top 10 Equity Indices by Fund Size 17Jul2025
Analysis of Nifty 100 Low Volatility 30 Index 12Sep2023
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2. Return Performance:
The returns of these indices are total returns, including dividends. Smart beta indices are selected based on the total assets (AUM or assets under management) of passive funds (both exchange traded funds or ETFs and index funds) tracking the indices.
Smart beta indices with the highest AUM are given at the top of the table, starting from, Nifty 200 Momentum 30 (highest AUM) to Nifty Midcap 150 Momentum 50 (lowest AUM among the eight selected). You could check a previous blog for top equity indices and their AUM.
Table 2: Trailing returns of select "smart beta" indices >
(click on the image to view better)
Observations from the above two tables >
A. Calendar Year performance trends:
> Momentum indices, like, Nifty 200 Momentum 30 and Nifty Midcap 150 Momentum 50, have done well in several years, like, 2017, 2021, 2023 and 2024
> but in 2025 so far, momentum factor has performed poorly as Indian stock markets lost momentum in Sep2024 and struggled for better part of 2025 versus global peers
> Low volatility factor (Nifty 100 Low Vol 30) does not have a negative return year in the past 11 years, showing resilience
> Low volatility indices deliver smoother returns but lag in strong rallies. In 2024, it underperformed sharply.
> Quality factors show consistent performance in general; but they suffered from under performance in 2025 and 2024 as the factor is out of fear with investors in recent years
> Quality factor fails to give spectacular returns delivered by momentum factors; it's likely quality factors will do well in prolonged bear markets
> Nifty 50 Equal Weight has been doing well since 2020 outperforming Nifty 50 in every calendar year (2020-2025); though it underperformed Nifty 50 prior to 2020
B. Trailing performance trends:
> On a 3-year, 5-year and 10-year basis, momentum factors have done exceedingly well compared to lacklustre performance from quality and low volatility factors
> According to the above data, momentum is the long-term winner among the select smart beta indices
> Low volatility factor tends to provide downside protection
> Equal Weight is a bet on broad-based markets, outperforming during periods when mid-weight stocks participate in rallies
> High AUM smart beta strategies reflect actual investor preference and capital flows
> It is not surprising that Momentum leads the list
Momentum shines in strong, trending markets (for example, 2017, 2020–2021), but it can struggle sharply when market leadership rotates or when sharp corrections occur (for example, 2018, 2022, 2025 YTD).
Low Volatility performs best during risk-off environments or when broader indices experience drawdowns, such as in 2018 and 2025. It acts like a defensive shield.
Quality tends to do well in uncertain or fundamentally driven markets, offering steady performance with fewer drawdowns. It seldom tops the charts but rarely collapses.
4. Concluding remarks
Smart beta indices in India show clear performance cycles, with no single factor leading in all market conditions. Momenttum has delivered the strongest long-term returns but is also the most volatile, excelling mainly in trending or bullish phases.
Low volatility and quality factors tend to outperform during uncertain or corrective periods, providing steadier and more defensive returns. Benchmarks like Nifty 50 and Nifty Midcap 150 often fall between these extremes, with midcaps offering higher but riskier long-term returns.
Overall, the data show that factor leadership rotates over time, making diversification across factors a sensible approach for most investors.
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Tweet thread 24No2025 - Factor Investing in India; do smart beta indices outperform parent indices?
Tweet 02Mar2025 The Baloney of Smart Beta Indices
Nifty Return Profile (strategy indices)
NSE Index dashboard monthly
NSE Index dashboard archives
NSE Indices Research Papers / working papers
Nifty Indices factsheets
Methodology document for Nifty indices, including smart beta indices
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P.S. dated 24Mar2026: Calendar and Trailing returns of smart beta indices as at the end of 23Mar2026 >
This is an update of trailing and calendar year returns of the so-called smart beta indices based on Nifty indices. The trailing returns are as at the end of 23Mar2025 and calendar year returns are from 2015 to 2025 >
Check two data images attached below >
Overall snapshot:
Smart beta indices in India are going through a broad short-term drawdown as of late March 2026, but medium- to long-term returns remain healthy across most factors.
Short-term momentum (1–3 months):
Across nearly all indices, 1-month returns are around minus 10 to minus 14 per cent and 3-month returns are also deeply negative. Momentum and quality variants have been hit slightly harder than the broad Nifty 50. This indicates a broad-based correction rather than factor-specific weakness.
1-year performance:
Most indices are flat to negative over 1 year. Nifty 50 is around minus 2.5 per cent. Momentum and quality indices are weaker, with some in the minus 3 to minus 4.5 per cent range. Equal weight and midcap indices are slightly better, with low single-digit positive returns. This suggests factor rotation and lack of clear leadership over the past year.
Medium-term (3–5 years):
Returns remain strong. Most smart beta indices deliver roughly 13 to 21 per cent annualised over 3 years and about 10 to 20 per cent over 5 years. Momentum and midcap momentum stand out on the higher end, while quality and low volatility are more moderate.
Long-term (10 years):
All indices show solid double-digit annualised returns, generally between 12 and 21 per cent. Momentum and midcap momentum are among the top performers. Even defensive factors like low volatility and quality deliver respectable long-term outcomes.
Calendar year trends:
Returns are highly cyclical. Strong years like 2021 and 2023 show very high gains across most factors, often above 30 to 70 per cent in momentum strategies. Weak years like 2018, 2022, and now 2025 show sharp drawdowns, especially for momentum. Low volatility tends to fall less in bad years but also lags in strong bull markets.
Factor behaviour insights:
Momentum is the most volatile, with extreme highs and lows. It outperforms strongly in trending bull phases but corrects sharply during reversals.
Low volatility is more stable, protecting better in downturns but lagging in rallies.
Quality delivers steadier, mid-range performance with less extreme swings.
Equal weight benefits during broader market participation phases.
Midcap-based strategies amplify both upside and downside.
Current takeaway:
The current phase looks like a cyclical correction after strong prior years, not a structural breakdown. Short-term pain is widespread, but long-term factor performance remains intact. Diversification across factors and patience remain key.
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P.S. dated 26Nov2025: Review of performance of smart beta funds:
While we had on 24Nov2025 analysed the performance of benchmark returns of several smart beta indices, we had not commented on the performance of smart beta funds (both index funds and ETFs) that are tracking the smart beta indices. The following charts provide information on the trailing returns of the smart beta funds:
Chart 1: Trailing returns of smart beta passive funds and benchmark returns tracking Nifty 200 Momentum 30 TRI index >
Chart 2: Trailing returns of smart beta passive funds and benchmark returns tracking Nifty 100 Low Volatility 30 TRI index >
Charts 3 and 4: Trailing returns of smart beta passive funds and benchmark returns tracking Nifty 200 Quality 30 TRI and Nifty Midcap 150 Quality 50 TRI indices >
Observations from the above charts >
> none of the above passive funds have more than five year track record, except one fund
> most of the passive funds are of recent origin, lacking long term track record
> the expense ratios of several passive funds are high; raising doubts about the investability of several funds
> all data are as at the end of 25Nov2025
> all data of index funds are for regular plans
> 2-year to 5-year return data are annualised
> the actual performance of the passive funds is lower than the benchmark returns of the respective indices
> there is no guarantee passive funds will match the benchmark returns, though they may try to do so as per the investment mandate
> For ETFs or exchange traded funds, you need to check the volume data also
Rebalancing frequency and rebalancing months of select smart beta indices and their parent indices (Data from Nifty Indices Methodology Document as of Nov2025) >
Expense ratios of Direct Plans of Passive funds discussed above >
Updated chart: Calendar year returns of select smart beta indices >
Comparative charts of some smart beta funds from Rupee Vest >
1. returns and expense ratios >
2. standard deviation, Sharpe ratio and valuation ratios >
3. large-cap, mid-cap and small-cap weights and top 10 stocks >
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Disclosure: I've got a vested interest in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.
Disclaimer: The analysis and
opinion provided here are only for information purposes and should not be construed
as investment advice. Investors should consult their own financial advisers
before making any investments. The author is a CFA Charterholder with a vested
interest in financial markets.
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