There was an unexpected rise in the stock market yesterday. On Thursday morning, the market opened positive, but in a limited range. Just an hour before the trade was about to end, it rose sharply. After 2 pm in the afternoon, at one point the BSE Sensex had climbed up to about 1500 points. At that time some sellers also dominated. Even then, at the end of the trade, the BSE Sensex was up by 1439.55 points. If we look at it, except for one day this week, the market was positive.

An opportunity to take advantage of market momentum

In the bullish trend in the market at the moment, some stocks have outpaced others in their growth. This dynamic situation creates an opportunity to capitalise on the market momentum through strategy products like smart beta funds. NSE data shows that in terms of returns in FY24, the broad-based Nifty 50 did not perform well compared to strategy-based indices, with the Nifty 50 delivering a return of 31%. Some strategy-based indices like the Nifty 500 Value 50 delivered a return of 65%. The Nifty Alpha 50 delivered a return of 61% and the Nifty 100 Alpha 30 delivered a return of 67%. Interestingly, the Nifty Low Volatility 50, Nifty 100 Low Volatility 30 and Nifty Quality Low Volatility 30 delivered higher returns than the Nifty 50 with less volatility than the broad-based indices. Smart beta funds select stocks using momentum, volatility, quality and value strategies.

Buy low, sell high

The NFO of Nippon India Mutual Fund's 'Nippon India Nifty 500 Momentum 50 Index Fund' opened last Wednesday. It will close on September 25, 2024. The 'buy low, sell high' strategy is a traditional strategy. The Nifty 500 Momentum 50 Index offers investors a unique opportunity to create wealth in the medium to long term by using the strategy of buy high and sell high. Vishal Ahuja of Blue Lake Capital Management says that it combines the features of passive investing. It is rule-based and selected with active investing using technical factors such as momentum factor.

Stocks from which sectors are included?

Nippon India Nifty 500 Momentum 50 Index Fund tracks the Nifty 500 Momentum 50 TRI, which comprises the top 50 stocks with the highest momentum score based on six and 12-month price returns adjusted for volatility. The index comprises stocks from 13 sectors. It is reconstituted in June and December every year.

Scope for better returns

The basic principle governing momentum index funds is that stocks perform relatively strongly in the recent past and vice versa. Strict selection criteria go a long way in protecting investors' interests. The most important part is that the index excludes stocks with low liquidity. Companies where promoter pledges exceed 20%, and non-F&O stocks that hit circuits in more than 20% trading days are also excluded. This provides protection to investors and also leaves room for better returns.

(Disclaimer: The suggestions given in this analysis are those of individual analysts or broking companies, not of NBT. We advise investors to consult certified experts before making any investment decision as stock market conditions can change rapidly.)