How Valuations Shape Returns and Risk in Select NSE Indices: A 6-Index, 6-Year Study of Return and Risk Across Valuation Regimes 21Apr2026
(This is my 505th blog since
2010. Over the years, I have covered global financial markets, with a
focus on India, and continue to share insights to help readers
understand complex topics in simple language.
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.)
(Don't miss the Update 03May2026, with blog titled Valuation Changes in Broad Market and Smart Beta Nifty Indices)
WARNING: This comprehensive analysis is not for the faint-hearted, as it involves different market cycles, changing conditions and wide variation in outcomes across indices. It needs careful attention to context rather than quick or surface-level conclusions.
PURPOSE OF THE STUDY
Objective:
To understand how valuation levels influence future returns and risk across selected Nifty indices.
Core question:
How do forward returns and volatility differ between low and high valuation regimes?
In the absence of downside risk (which would have a better metric for investors to understand risk intuitively) data, we used standard deviation (volatility) as a proxy for risk.
What is being tested?
Whether higher valuations are associated with lower future returns and higher risk, and the extent of this relationship.
Practical investing lens:
Investing decisions involve adjusting exposure, not binary choices. This includes increasing or reducing allocation, staggering investments, and being more cautious at high valuations and more aggressive at low valuations.
Behavioral question:
How should exposure change when valuations are high versus low?
Scope:
This is a historical, descriptive analysis of valuation, returns, and risk. It does not recommend investment actions.
Final framing:
How do return and risk outcomes vary across valuation regimes, and what does this imply for allocation behaviour?
DATA SET AND STRUCTURE
Source and indices:
Quarterly data from NSE India (NiftyIndices.com) for six select indices:
Nifty 50,
Nifty Midcap 150,
Nifty Smallcap 250,
Nifty 100 Low Volatility 30,
Nifty 200 Momentum 30, and
Nifty 200 Quality 30.
While momentum factor may be better captured using monthly data, this study uses quarterly data to reduce noise, ensure comparability across indices and align with longer-term valuation signals.
Index selection rationale:
The study covers six Nifty indices to represent both broad market segments and factor-based strategies. Nifty 50, Nifty Midcap 150 and Nifty Smallcap 250 capture the large-cap, mid-cap and small-cap segments of the Indian equity market.
In addition, three "smart beta" (factor investing) indices are included to reflect systematic investment styles beyond market capitalisation. Two of these are widely followed with significant assets tracking them, while the third is included due to its relatively higher return potential during the study period.
Period and constraints:
TRI-based (Total Returns Index) data is available from Dec 2019 to Mar 2026 (26 quarters).
This was further reduced to 21 quarters to maintain comparability, as NSE India changed the Nifty 50 PE calculation methodology in Mar 2021 from standalone earnings to consolidated earnings, creating a structural break in the data.
Total returns include price returns and dividends.
Final dataset:
21 quarters of consistent data for each Nifty index.
DATA VARIABLES
Returns:
1-year (absolute), 3-year CAGR, 5-year CAGR
Risk:
Standard deviation
Valuation:
PE, PB, Dividend Yield
For PE and PB, lower values generally indicate lower valuations and higher values indicate higher valuations; in contrast, dividend yield works inversely, where higher yields generally indicate lower valuations.
DATA FILTERING
Removed variables:
1-month and 3-month returns (too noisy)
Beta, correlation, R squared (not relevant to this study)
Final variables used:
Returns (1-year, 3-year, 5-year), standard deviation, PE, PB, dividend yield
DESCRIPTIVE FRAMEWORK
For each index, the following metrics are summarised:
PE, PB, dividend yield, standard deviation
Each is analysed using:
Minimum, 25th percentile, median, 75th percentile, maximum
INTERPRETATION APPROACH
Valuation regimes:
Low (bottom quartile), median, high (top quartile)
Purpose:
To assess how returns and risk shift across valuation bands.
CONSISTENCY CHECKS
Expected patterns:
Momentum index to show highest volatility
Low volatility index to show lowest volatility
Quality index to trade at higher valuations
Smallcap highest volatility, midcap next, Nifty 50 lowest
ADDITIONAL DATA
The complete dataset covering all 21 quarters for each index is provided at the end of the blog / study for reference.
DATA SOURCES
Nifty Indices - NSE Index factsheet
NSE Index Dashboard (Nifty Indices) - PDF for Mar2026
END NOTE
The dataset enables comparison of return and risk across valuation regimes. The next step is to map valuation levels to forward outcomes and test whether higher valuations consistently lead to lower returns and higher risk.
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Now, let us dive into the actual study.
(Please note as this is a data-driven article, it will some time to complete the blog, so please bear with me till then).
1 INTRODUCTION
Future returns are shaped by the expectations embedded in valuations at the start of the investment period, and the path markets take thereafter also matters (path dependence).
This study examines how starting valuation levels have historically aligned with subsequent returns and risk across select Nifty indices.
By comparing outcomes across valuation regimes, it seeks to understand how both starting points and market paths influence realised outcomes.
(Study continues below)
-------------------
Related blogs:
Top 10 Equity Indices Powering Passive Investing in India: Big-Picture View 29Jan2026 (Big picture view of Passive Equity Funds - passive funds)
The Next Generation of Market Leaders: A Fresh Look at Nifty Next 50's Corporate Landscape 15Jan2026 (NSE Indices / Nifty Indices) NSE's Backtesting
Claims Child Indices Beat Parent Indices - But Does It Hold in Real
World? 09Dec2025 (incl calendar year returns of Nifty 50, Nifty Midcap
150 and the so-called smart beta indices) (NSE Indices / Nifty Indices)
Factor Investing in India: Do "Smart Beta" Indices Outsmart Nifty 50 and Midcap 150? 24Nov2025 (incl trailing returns; calendar year returns of Nifty 50, Nifty Midcap 150 and the so-called smart beta indices) (NSE Indices / Nifty Indices)
2 Nifty 50 Index Analysis
Valuation profile:
Nifty 50 valuations are generally stable around a central range. The PE ratio mostly stays between 21.4 and 23.2, showing a fairly consistent valuation band over time (Chart 1 below).
There is one notable spike up to 33.2, in Mar2021, during the post-COVID period. This is largely due to temporarily weak earnings after the severe lockdown shock, combined with markets pricing in a strong recovery ahead.
As a result, this peak reflects a distorted earnings base rather than sustained overvaluation.
The PB ratio also remains stable, mostly between 3.5 and 4.2, indicating steady valuation behaviour from a book value perspective.
Dividend yield moves inversely, ranging from 0.96 per cent to 1.44 per cent, with higher yields typically seen when valuations are lower.
Risk profile:
Short-term risk varies meaningfully over time. The one-year standard deviation ranges from 9.8 per cent in calmer phases to 22.5 per cent in stressed markets, with a typical level around 13.6 per cent.
This shows that risk is not constant and tends to cluster in certain market environments rather than remaining evenly distributed over time.
Return profile:
One-year returns show very high dispersion depending on entry point. They range from -4.0 per cent in weak periods to 72.5 per cent in strong rallies, with a typical outcome around 16.1 per cent.
Three-year returns are more stable, and five-year returns are even more compressed. This shows that longer holding periods reduce the impact of entry timing and smooth out short-term volatility.
Key takeaway:
Nifty 50 demonstrates strong path dependence in short-term outcomes, where entry timing significantly affects returns. Over longer horizons, returns stabilise and dispersion reduces.
Valuations tend to move in cycles rather than trends, and apparent extremes such as the March 2021 PE spike are largely driven by temporary earnings distortions rather than structural changes in valuation levels.
Sidenote: While this study focuses on equity valuations, future returns are also influenced by the prevailing cost of capital, typically reflected in the 10-year sovereign bond yield (10-year G-Sec bond yield in India). Changes in bond yields affect discount rates and, in turn, shape how equity valuations are interpreted across different time periods.
Chart 1 showing summary data for Nifty 50 index with valuation ratios, risk and returns >
Nifty 50 Valuation Entry Point Analysis:
The entry point analysis shows how investment outcomes change depending on when you enter the market and the valuation level at that time (Chart 1A below).
It compares short, medium, and long-term realised returns from the same starting point to highlight the role of holding period.
Overall, it helps understand how valuations and market cycles together influence return and risk over time.
Sep 2024 – Peak phase:
This phase represents a local market peak, with PE ratio (or price earnings multiple) at 24.3 and PB ratio (or price to book multiple) at 3.9. Dividend yield is relatively low at 1.16 per cent, consistent with higher valuation conditions.
One-year volatility is 13.3 per cent, indicating moderate risk compared to more stressed phases. However, the short-term outcome is weak, with a 1-year realised return of -3.5 per cent, showing that entering at peak valuation can coincide with near-term drawdowns.
Longer-term returns are not yet available from this point.
Sep 2023 – Uptrend phase:
This period lies within a broader market uptrend, with PE at 22.2 and PB at 3.5. Dividend yield is higher at 1.37 per cent, suggesting a more balanced valuation environment.
Volatility is relatively low at 10.2 per cent, reflecting stable market conditions. The 1-year realised return is strong at 33.0 per cent, highlighting favourable outcomes during sustained uptrend phases.
Jun 2022 – Trough regime:
This phase reflects a valuation trough, with PE at 19.5 and dividend yield elevated at 1.41 per cent, indicating relatively attractive entry conditions. PB stands at 4.0.
Volatility is higher at 17.1 per cent, reflecting uncertainty during the adjustment phase. However, forward outcomes are strong, with a 1-year realised return of 22.9 per cent and a 3-year CAGR of 18.7 per cent, showing improved medium-term performance from lower valuation entry points.
Mar 2021 – Near peak:
This phase reflects elevated valuations, with PE at 33.2 and PB at 4.2, alongside a low dividend yield of 0.96 per cent. This period is influenced by post-COVID earnings distortion and strong forward expectations.
Volatility is highest at 22.5 per cent, indicating heightened uncertainty.
Despite this, returns remain positive across horizons, with a 1-year realised return of 20.3 per cent, a 3-year CAGR of 16.3 per cent, and a 5-year CAGR of 10.0 per cent, showing how cycle continuation and earnings recovery can sustain returns even from high valuation entry points.
Key takeaway:
The analysis shows that investment outcomes are not determined by valuation levels alone.
While lower valuation regimes such as Jun 2022 tend to support strong forward returns, higher valuation and uptrend phases can also deliver strong outcomes depending on market momentum and earnings progression.
Volatility varies across regimes but does not fully explain return differences.
Overall, realised returns are influenced by the valuation level at which an investment is made.
They also depend on where the market is in its cycle at the time of entry.
The outcome further varies based on how long the investment is held.
Together, these factors determine the final return rather than any single variable alone.
Chart 1A showing Nifty 50 index valuation entry point analysis:
How to read the above entry point analysis table:
Each row shows a specific point in time when an investor could have entered the Nifty 50, along with the valuation level at that time and the market conditions.
The “market phase” and valuation metrics (PE, PB, dividend yield) describe how expensive or cheap the market looked at the point of entry.
The return columns show what actually happened after investing at that point—first over 1 year, then over 3 years and finally over 5 years—so you can see how outcomes change depending on how long the investment is held.
In simple terms, the table connects “what the market looked like when you entered” with “what you actually got over time.”
The Conundrum of Mar2021 High Valuations, but Subsequent High Returns:
Mar2021 shows why valuation alone can be misleading for decision-making. On the surface, a very high PE of 33.2 and a low dividend yield of 0.96 per cent would typically signal an expensive market, which could discourage new investors.
However, this elevated PE was not driven only by extreme price optimism. It was also influenced by temporarily depressed earnings during the post-COVID lockdown period in India.
When earnings fall sharply, PE rises mechanically even if prices are not excessively stretched in a structural sense. In that sense, part of the “expensive” reading was a denominator effect rather than purely a valuation bubble signal.
Despite this, realised outcomes over subsequent periods were still reasonably strong, supported by liquidity conditions, earnings recovery and the broader post-COVID uptrend.
This creates a clear conundrum: what appears expensive at the point of entry can still deliver positive returns if the cycle and earnings trajectory remain supportive.
In other words, Mar 2021 illustrates that valuation signals are necessary but not sufficient on their own.
They need to be interpreted alongside earnings conditions, cycle position, and macro liquidity rather than in isolation, since forward returns in this case were driven more by earnings normalisation than by valuation compression alone.
3 Nifty Midcap 150 Index Analysis
Valuation profile:
Nifty Midcap 150 shows a wider and higher valuation range compared to Nifty 50. The PE ratio ranges from 22.8 to 45.7, with a median of 30.6, indicating that midcap stocks generally trade at richer valuations and with greater dispersion (Chart 2 below).
The interquartile range of 26.5 to 34.6 suggests that valuations frequently move across a broad band rather than staying tightly anchored. The upper end reaching 45.7 (in Sep2024) reflects phases of strong optimism and valuation expansion in midcap stocks.
PB ratio also shows a wide spread, ranging from 2.8 to 5.9 with a median of 4.1, indicating variability in how the market prices midcap balance sheets.
Dividend yield is structurally lower, ranging from 0.68 per cent to 1.26 per cent, with a median of 0.85 per cent. Lower yields are consistent with higher growth expectations typically associated with midcap companies.
Risk profile:
Risk is meaningfully higher and more persistent compared to large caps. The one-year standard deviation ranges from 11.1 per cent to 20.2 per cent, with a median of 17.1 per cent.
Even the lower end of volatility is not as subdued as in Nifty 50, and the interquartile range of 16.1 to 18.4 per cent indicates that elevated risk is a more common feature rather than an exception.
This suggests that midcap investing inherently involves greater uncertainty and sharper price movements (higher maximum drawdowns) across market phases.
Return profile:
Return dispersion is significantly wider. One-year returns range from -5.2 per cent to 101.6 per cent, with a median of 25.1 per cent, indicating strong upside potential along with downside risk.
Three-year returns are robust, with a median CAGR of 24.0 per cent and an upper range of 37.3 per cent, suggesting strong compounding during favourable cycles.
Five-year returns remain strong, with a median of 20.6 per cent and a wide range up to 34.6 per cent, indicating that midcaps can deliver superior long-term returns but with higher variability.
Key takeaway:
Nifty Midcap 150 reflects a higher risk–higher return profile compared to large caps. Valuations are not only higher on average but also more volatile, moving across wider bands depending on market sentiment.
Returns show significantly greater dispersion, especially in the short term, but remain strong over longer horizons, suggesting that time helps absorb volatility but does not eliminate it entirely (mind you, the data in this study are just for 21 quarters).
Overall, midcap outcomes are more sensitive to market cycles, with valuation expansion and contraction playing a larger role, making entry timing and regime context even more important than in large-cap indices.
Chart 2 showing summary data for Nifty Midcap 150 index with valuation ratios, risk and returns >
Nifty Midcap 150 Valuation Entry Point Analysis
Sep 2024 – Peak phase:
This represents an extreme valuation peak, with PE at 45.7 and PB at 5.9, and a low dividend yield of 0.68 per cent. Volatility is moderate at 16.8 per cent.
The 1-year realised return is -5.2 per cent, indicating weak short-term outcomes from peak valuations (Chart 2A below).
Mar 2023 – Trough phase:
Valuations are at the lower end, with PE at 23.5 and PB at 2.8, and a highe dividend yield of 1.26 per cent. Volatility remains elevated at 16.1 per cent.
Forward returns are strong, with 1-year realised return at 57.5 per cent (from entry point) and 3-year CAGR at 20.3 per cent, showing strong rebound from low valuations.
Dec 2021 – Near peak:
Valuations are elevated, with PE at 30.5 and PB at 4.1. Volatility is 16.9 per cent. The 1-year return is modest at 3.9 per cent, but the 3-year CAGR is strong at 23.2 per cent, indicating recovery over time.
Mar 2021 – Uptrend:
Valuations are high, with PE at 40.6. Volatility is also high at 19.5 per cent. Despite this, returns are strong, with 1-year at 25.1 per cent, 3-year CAGR at 26.5 per cent, and 5-year CAGR at 17.5 per cent, reflecting momentum and earnings growth.
Mar 2021 shows a conundrum similar to what we had observed for Nifty 50 index, where a high PE of 40.6 suggested expensive valuations, yet subsequent returns were strong.
This was partly due to depressed earnings post-COVID, which inflated the PE, rather than purely excessive pricing.
As earnings recovered and the uptrend continued, returns remained strong despite the seemingly high entry valuation.
Key takeaway:
Midcap outcomes show stronger sensitivity to valuation extremes. Low valuation entry points deliver strong returns, while peak valuations can lead to weak short-term outcomes. However, returns are also driven by cycle momentum, making both timing and holding period critical.
Chart 2A showing Nifty Midcap 150 index valuation entry point analysis:
4 Nifty Smallcap 250 Index Analysis
Valuation profile:
Nifty Smallcap 250 shows wide valuation dispersion, with PE ranging from 16.9 to 43.3 and a median of 27.4. This indicates that valuations swing sharply across cycles rather than staying anchored.
PB ratio is relatively moderate, ranging from 2.5 to 4.4, with a median of 3.6. Dividend yield varies between 0.62 per cent and 1.38 per cent, with higher yields seen during lower valuation phases.
Risk profile:
Risk is consistently high. One-year standard deviation ranges from 12.6 per cent to 21.7 per cent, with a median of 19.1 per cent, indicating that elevated volatility is a persistent feature.
Even in relatively calmer periods, volatility remains higher than large and midcap indices.
Return profile:
Return dispersion is extremely wide. One-year returns range from -8.8 per cent to 118.7 per cent, with a median of just 6.0 per cent, highlighting sharp upside potential but also frequent weak outcomes.
Three-year and five-year returns are stronger and more stable, with medians of 24.2 per cent and 17.5 per cent respectively, but still show wide ranges, reflecting cycle-driven performance.
Key takeaway:
Nifty Smallcap 250 is highly cycle-sensitive, with large swings in both valuations and returns.
Short-term outcomes are unpredictable and widely dispersed, while longer-term returns improve but remain volatile.
Overall, smallcap investing offers higher return potential, compared to say, Nifty 50, but with significantly higher risk and dependence on market timing and cycle conditions.
Chart 3 showing summary data for Nifty Smallcap 250 index with valuation ratios, risk and returns >
Nifty Smallcap 250 Valuation Entry Point Analysis
Sep 2024 – Peak phase:
Valuations are elevated, with PE at 33.5 and PB at 4.3, while dividend yield is low at 0.83 per cent. Volatility is high at 19.1 per cent. The 1-year realised return is -8.8 per cent, indicating sharp downside from peak entry.
Mar 2023 – Trough phase:
Valuations are compressed, with PE at 16.9 and PB at 2.5, and the highest dividend yield at 1.38 per cent. Volatility remains elevated at 17.4 per cent. Returns are very strong, with 1-year at 64.2 per cent and 3-year CAGR at 18.3 per cent, showing powerful rebound from low valuations.
Dec 2021 – Near peak:
Valuations are high, with PE at 31.0 and PB at 3.8. Volatility is 17.6 per cent. The 1-year return is slightly negative at -2.6 per cent, while the 3-year CAGR is strong at 22.7 per cent, indicating weak short-term but recovery over time.
Mar 2021 – Uptrend:
Valuations are extremely high, with PE at 43.3. Volatility is also high at 19.9 per cent. Despite this, returns are strong, with 1-year at 37.0 per cent, 3-year CAGR at 28.3 per cent, and 5-year CAGR at 16.3 per cent, reflecting strong momentum and earnings recovery.
Mar 2021 highlights a conundrum similar to Nifty 50 and Nifty Midcap 150, where very high valuations still led to strong subsequent returns.
This reflects the impact of earnings recovery and strong market momentum, showing that even expensive entry points can deliver gains when the cycle remains supportive.
Key takeaway:
Smallcap outcomes are highly sensitive to valuation extremes. Peak entries lead to sharp short-term declines, while trough entries deliver strong rebounds.
However, high valuation phases can still generate strong returns if supported by momentum, making timing and holding period critical.
Chart 3A showing Nifty Smallcap 250 index valuation entry point analysis >
5 Nifty 100 Low Volatility 30 Index Analysis
Valuation profile:
Nifty 100 Low Volatility 30 (a type of "smart beta" index with low volatility factor) shows a relatively stable and higher valuation structure compared to broader indices. PE ranges from 22.4 to 36.0, with a median of 26.2, indicating a moderately rich but stable valuation band.
PB ratio is consistently high, ranging from 4.4 to 6.9, reflecting the quality and stability bias of the index. Dividend yield is also structurally higher, ranging from 0.98 per cent to 2.30 per cent, with a median of 1.57 per cent, indicating more defensive income characteristics.
Risk profile:
As the name of the index suggests,risk is significantly lower and more stable than broad market indices. One-year standard deviation ranges from 8.5 per cent to 18.5 per cent (which is an extreme outlier for Mar2021), with a median of 12.0 per cent.
This confirms the low volatility design of the index, with risk clustering at lower levels even during stressed phases compared to mid and small caps.
Return profile:
Returns are relatively stable and less dispersed. One-year returns range from -5.9 per cent to 62.0 per cent, with a median of 15.1 per cent.
Three-year and five-year CAGRs are also more stable, with medians of 17.6 per cent and 15.9 per cent respectively, showing smoother compounding compared to broader indices.
Key takeaway:
Nifty 100 Low Volatility 30 delivers more stable risk and return outcomes with lower dispersion across cycles.
Unlike midcap and smallcap indices, it shows limited upside extremes but also reduced downside volatility, reflecting its defensive and quality-biased construction.
Compared to Nifty 50, Midcap 150, and Smallcap 250, this index behaves less like a cyclical equity index and more like a stability-oriented equity allocation, where returns are smoother but less dependent on aggressive market phases.
Chart 4 showing summary data for Nifty 100 Low Volatility 30 index with valuation ratios, risk and returns >
Nifty 100 Low Volatility 30 Index Valuation Entry Point Analysis
Sep 2024 – Peak phase:
This phase reflects a valuation peak, with PE at 36.0 and PB at 6.6, while dividend yield is low at 0.98 per cent. Volatility is relatively contained at 10.7 per cent, consistent with the low volatility design.
The 1-year realised return is -5.9 per cent, showing mild downside even in a defensive index during peak valuations.
Jun 2022 – Trough phase:
This period reflects a valuation trough, with PE at 22.4 and PB at 4.7, while dividend yield is elevated at 2.30 per cent. Volatility is higher at 14.6 per cent, reflecting broader market stress.
Returns are strong, with 1-year at 22.7 per cent and 3-year CAGR at 20.4 per cent, showing clear benefit from low valuation entry.
Sep 2021 – Near peak phase:
Valuations are moderate to elevated, with PE at 24.3 and PB at 5.2. Dividend yield remains high at 2.10 per cent. Volatility is low at 12.4 per cent.
The 1-year return is slightly negative at -3.4 per cent, while the 3-year CAGR is solid at 18.1 per cent, indicating stable medium-term compounding despite weak short-term outcomes.
Mar 2021 – Uptrend phase:
This phase shows mid-to-high valuations, with PE at 25.4 and PB at 4.4, alongside a high dividend yield of 2.21 per cent.
Volatility is relatively high at 18.5 per cent. Returns are steady, with 1-year at 15.1 per cent, 3-year CAGR at 19.1 per cent, and 5-year CAGR at 11.7 per cent. This shows more stable but less extreme compounding over time.
Brief summary:
Unlike broader indices, the Low Volatility index shows muted downside even at valuation peaks and relatively stable outcomes across cycles.
Returns are less extreme in both directions, but still show sensitivity to valuation entry points, particularly in the short term.
Overall, the index behaves more like a stability-oriented equity exposure, where timing matters, but outcomes are significantly smoother than in midcap and smallcap indices.
Chart 4A showing Nifty 100 Low Volatility 30 index valuation entry point analysis >
6 Nifty 200 Momentum 30 Index Analysis
Valuation profile:
Valuations show very wide dispersion, with PE ranging from 16.1 to 49.0 and a median of 24.3. This reflects sharp swings driven by changing market leadership rather than stable valuation anchors.
PB ratio also varies widely from 2.8 to 8.5, indicating strong re-rating cycles. Dividend yield ranges from 0.34 per cent to 2.01 per cent, with lower yields typically seen during strong momentum phases.
Risk profile:
Risk is consistently high. One-year standard deviation ranges from 13.1 per cent to 23.8 per cent, with a median of 19.4 per cent, the highest among the indices analysed.
This confirms that momentum strategies inherently carry higher volatility and more frequent regime shifts.
Return profile:
Returns vary a lot. One-year returns range from -20.0 per cent to 70.0 per cent, with a typical outcome around 22.2 per cent, showing both sharp losses and strong gains.
Over three and five years, returns are strong, with typical outcomes of 24.1 per cent and 23.1 per cent, showing good growth when trends continue.
Core insight:
Nifty 200 Momentum 30 shows very wide swings in both valuations and returns.
Performance is driven more by market trends continuing or reversing, rather than valuation levels alone, leading to sharp ups and downs.
Overall, it is a high-risk strategy where timing and awareness of market cycles play a key role in outcomes.
A note of caution: this comprehensive analysis is based on only 21 quarters of data, so any long-term conclusions should be viewed carefully and not taken as definitive (this caution is applicable for the six indices discussed here).
Chart 5 showing summary data for Nifty 200 Momentum 30 index with valuation ratios, risk and returns >
Nifty 200 Momentum 30 Index Valuation Entry Point Analysis
Sep 2024 – Peak phase: Valuations are moderate, with PE at 24.3 and PB at 5.0, while dividend yield is 1.36 per cent. Volatility is high at 20.8 per cent. The 1-year realised return is sharply negative at -20.0 per cent, showing strong downside risk when momentum reverses from peak conditions.
Mar 2023 – Trough phase:
Valuations are lower, with PE at 16.1 and PB at 2.8, and dividend yield at 1.50 per cent. Volatility remains high at 18.7 per cent. Realised returns are very strong, with 1-year at 70.0 per cent and 3-year CAGR at 14.9 per cent, reflecting powerful rebounds in momentum cycles.
Sep 2021 – Near peak phase:
Valuations are moderate, with PE at 18.4 and PB at 3.6. Volatility is 17.7 per cent. The 1-year return is slightly negative at -2.0 per cent, while the 3-year CAGR is strong at 25.1 per cent, indicating recovery over time despite short-term weakness.
Mar 2021 – Uptrend phase:
Valuations are high, with PE at 41.0 and PB at 4.9, while dividend yield is low at 0.38 per cent. Volatility is highest at 21.5 per cent. Despite this, returns are strong, with 1-year at 37.7 per cent, 3-year CAGR at 28.6 per cent and 5-year CAGR at 13.7 per cent, driven by sustained momentum.
In short:
Momentum index shows the highest sensitivity to market cycles. Peak entries can lead to sharp drawdowns, while trough entries deliver very strong rebounds.
Returns are highly dispersed and driven more by trend persistence and reversal than by valuation alone, making timing and cycle awareness critical.
Chart 5A showing Nifty 200 Momentum 30 index valuation entry point analysis >
7 Nifty 200 Quality 30 Index Analysis
Valuation profile:
Nifty 200 Quality 30 shows relatively high but stable valuations. PE ranges from 24.3 to 38.1, with a median of 29.7, indicating consistently premium pricing compared to broader indices.
PB ratio is structurally very high, ranging from 7.8 to 11.5, reflecting strong balance sheets and quality bias. Dividend yield is also stable and relatively high, ranging from 1.64 per cent to 2.53 per cent, with a median of 2.06 per cent.
Risk profile:
Risk is moderate and more stable compared to cyclical indices. One-year standard deviation ranges from 9.5 per cent to 18.8 per cent, with a median of 13.6 per cent.
This places the index closer to defensive behaviour, with lower volatility compared to midcap, smallcap and momentum strategies.
Return profile:
Returns are steady and less extreme. One-year returns range from -11.3 per cent to 56.8 per cent, with a median of 15.9 per cent, showing moderate upside with limited extremes.
Three-year and five-year CAGRs are stable, with medians of 16.4 per cent and 15.2 per cent respectively, indicating consistent compounding across cycles.
Bottom line:
Nifty 200 Quality 30 offers a balance between growth and stability.
It delivers relatively stable returns with lower volatility than cyclical indices, but without extreme upside or downside outcomes.
Overall, it behaves as a quality-oriented core equity strategy with smoother performance across market cycles.
Chart 6 showing summary data for Nifty 200 Quality 30 index with valuation ratios, risk and returns >
Nifty 200 Quality 30 Index Valuation Entry Point Analysis
Sep 2024 – Peak phase:
This phase shows high valuations, with PE at 38.1 and PB at 11.5, while dividend yield is relatively low at 1.64 per cent. Volatility is moderate at 12.3 per cent. The 1-year realised return is -11.3 per cent, indicating weak short-term outcomes from peak valuation levels.
Jun 2022 – Trough phase:
Valuations are lower, with PE at 27.0 and PB at 8.9, and the highest dividend yield at 2.37 per cent. Volatility rises to 16.0 per cent. Returns are strong, with 1-year at 21.4 per cent and 3-year CAGR at 19.0 per cent, showing good performance from low valuation entry points.
Sep 2021 – Near peak phase:
Valuations are elevated, with PE at 32.3 and PB at 9.3. Dividend yield is 1.93 per cent. Volatility is 13.1 per cent. The 1-year return is slightly negative at -3.0 per cent, while the 3-year CAGR is steady at 17.6 per cent, indicating stable medium-term compounding.
Mar 2021 – Uptrend phase:
Valuations are high, with PE at 31.9 and PB at 8.7, while dividend yield is 1.69 per cent. Volatility is highest at 18.8 per cent. Realised returns are positive across horizons, with 1-year at 17.8 per cent, 3-year CAGR at 16.4 per cent, and 5-year CAGR at 9.8 per cent, showing steady compounding through the cycle.
What stands out:
Quality index shows relatively stable behaviour across cycles compared to other smart beta strategies.
Returns are less extreme and volatility is more contained, but valuation still influences short-term outcomes.
Overall, it behaves as a defensive growth strategy with smoother returns and lower sensitivity to market cycles.
Chart 6A showing Nifty 200 Quality 30 index valuation entry point analysis >
8 Synthesis: Cross-Index Valuation, Risk and Return Snapshot (Median Values)
This cross-sectional analysis using median values helps focus on typical behaviour across cycles, rather than being distorted by extreme highs or lows.
It allows clearer comparison across indices by standardising different return and risk distributions into a single central reference point.
This makes it easier to understand structural differences between indices without noise from outliers or short-term spikes.
Valuation profile:
Valuations vary across indices. Nifty 50 (22.8) and Momentum (24.3) are relatively lower, while Midcap (30.6) and Quality (29.7) are higher. Smallcap (27.4) and Low Volatility (26.2) sit in the middle range.
PB ratios highlight structural differences, with quality (9.1) significantly higher, and other indices broadly between 3.6 and 5.2. Dividend yield is highest in quality (2.06 per cent) and low volatility (1.57 per cent), and lowest in mid and small caps (around 0.85–0.86 per cent).
Risk profile:
Volatility increases from large caps to more cyclical and factor strategies. Nifty 50 (13.6 per cent) and low volatility (12.0 per cent) are the most stable, while midcap (17.1 per cent), smallcap (19.1 per cent) and momentum (19.4 per cent) show higher risk.
Return profile:
Returns vary meaningfully across indices rather than clustering tightly. Midcap, Smallcap, and Momentum generally deliver higher 3-year CAGR outcomes (around 24 per cent), reflecting stronger cycle sensitivity and upside capture.
Nifty 50 and Low Volatility provide more stable mid-teen returns, while Quality remains relatively steady but not among the highest. Across all indices, dispersion is clearly present, with performance differences widening depending on cycle exposure and index design.
Key synthesis:
The six indices form a clear spectrum from stability (Low Volatility, Quality, Nifty 50) to higher cyclicality (Midcap, Smallcap, Momentum).
Outcomes are driven less by valuation alone and more by index design, cycle exposure and holding period.
Chart 7 showing cross-index valuation, risk and return snapshot (all median values: 21 quarters data from Mar2021 to Mar2026) >
9 Core Insights, Limitations and How to Use This Study
A few representative entry points—covering peak, trough, near-peak and uptrend phases—are selected to illustrate how outcomes vary across market cycles without overloading the analysis.
The full dataset is provided at the end for readers who wish to explore other entry points.
Across all six Nifty indices, the main message is that market outcomes are driven more by cycles and how each index is built than by valuation alone. Different indices behave differently even in the same market environment, depending on the type of stocks they include and the rules used to construct them.
Momentum and Smallcap indices tend to amplify market cycles. They perform strongly in uptrends but also experience sharper drawdowns during corrections, reflecting their higher sensitivity to market conditions.
In contrast, Quality and Low Volatility indices show more stable behaviour, with smoother returns and smaller swings on both the upside and downside.
Valuation levels alone do not consistently explain future outcomes. Even when starting valuations were seemingly high in several cases, such as around Mar2021, subsequent realised returns were still strong.
This is partly because earnings were temporarily depressed during the lockdown-afflicted COVID-19 period, which made valuations appear more expensive than underlying fundamentals suggested. As earnings recovered and liquidity conditions remained supportive, returns stayed strong.
Holding period also plays an important role. Over longer time frames, return differences tend to reduce, but they do not disappear completely.
Instead, outcomes become more dependent on index type and its behaviour across market cycles rather than entry timing alone.
Overall, investment outcomes are shaped by a combination of starting valuation, market cycle position, index construction and holding period. No single variable is sufficient on its own to explain returns across all market conditions.
This study is based on historical data and covers a limited period of 21 quarters.
It does not explicitly model macroeconomic variables such as interest rates (cost of capital is vital for stock market valuations), liquidity conditions or earnings forecasts, which can influence market outcomes significantly.
Investing is inherently forward-looking, whereas this analysis is based on backward-looking data. Therefore, these insights should be used to understand patterns of market behaviour rather than to predict future returns.
In essence, this framework helps interpret how markets behave across cycles, but investment decisions should be based on a broader view that combines data, context and forward-looking judgement.
In practical terms, investors may use percentile ranges from this study as reference bands to understand where current valuations stand relative to history, while ignoring extreme outliers.
However, valuation should not be used in isolation. It should be combined with an assessment of market cycles, earnings trends, liquidity conditions and personal risk tolerance.
From a portfolio perspective, investors with higher risk appetite may consider Midcap, Smallcap, and Momentum-oriented strategies, which offer higher return potential but also greater variability.
More conservative investors may prefer Large-cap (Nifty 50 or Nifty Next 50), Low Volatility, or Quality-focused indices, which tend to provide more stable and smoother performance across cycles.
These observations of the data-driven study are general in nature and should not be treated as personalised investment advice.
Investment decisions should be made in consultation with qualified financial advisors, based on individual goals, risk tolerance and time horizon.
(I started writing the article on 21Apr2026, but could only complete it by 22Apr2026 - thanks for your patience)
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References:
NSE Historical Index yield - Find out daily valuation ratios (PB, PE and dividend yield) of all Nifty indices / NSE indices (dropdown menu)
NSE Index performance daily Live analysis - all NSE Indices / Nifty indices
Tweet 22Apr2025 Bizarre spike in valuation ratios (PE, PB and dividend yield) of Nifty 200 Momentum 30 index on 31Dec2-24 vs previous day)
Tweet 03Jun2021 - Nifty 50 PE calculation method change wef 31Mar2021
Tweet 01May2024 - Don't compare Nifty PE ratios on or after 31Mar2021 with those in prior periods
Tweet 07Jul2024 - NSE press release on change in Nifty 50 PE calculation method
Nifty Indices - NSE Index factsheet
NSE Index Dashboard (Nifty Indices) - PDF for Mar2026
Nifty Indices - Passive Insights
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ADDITIONAL DATA
The complete dataset covering all 21 quarters for each index is provided at the end of the blog / study for reference. This is intended to improve transparency and allow readers to examine the raw data independently and draw their own conclusions.
It can also serve as a reference point for future analysis as market conditions evolve over time.
Nifty 50 >
Nifty Midcap 150 >
Nifty Smallcap 250 >
Nifty 100 Low Volatility 30 >
Nifty 200 Momentum 30 >
Nifty 200 Quality 30 >
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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.
