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Nifty 100 Low Volatility 30 Index | Yadnya Investment Academy

Nifty 100 Low Volatility 30 Index | Yadnya Investment Academy

Published on 31 March 2021 Views 73 Comments 0

Volatility in the Equity Market is the prime cause behind the restraining nature of investors to enter into the market. We all have witnessed an unprecedented journey in the last 1 year from March 2020 to March 2021. This journey is a true example of the presence of volatility in the market. So, in this blog, we will be discussing the volatility in the equity market and how one should cope with it.

Introduction:

  • Indian Stock Market faced an exceptional journey in the last 1 year.
  • Where the Indices fell nearly by 40% in March 2020 and touching their All-Time Low levels. But now, the Indices have skyrocketed from these low levels and are breaking their records of older heights.
  • The Benchmark Index like NIFTY has marked the levels of 15,000 and BSE SENSEX has crossed the levels of 50,000.
  • In terms of percentage, these indices have generated a return of 94.7% and 92.6% respectively between the period of 23rd March 2020 to 23rd March 2021.
  • The downward journey in the indices was very lightning which was quite a fearful and panic situation for the investors.
  • The rising journey of the indices was also questionable during the moment.

Why Should We Need to Seek Less Volatility While Investing?

  • Equity investing is the only way out to create wealth by beating inflation by a huge margin.
  • But Equity market is subject to volatility and risks and this experience of volatility in the market is like a Roller Coaster Ride, a journey of an equity market involves several ups and downs.
  • Talking about the time horizon to stay invested and create wealth, one should have a long-term vision. In Short-term, the Equity asset class can be riskier and loss-making as it involves high volatility.
  • So, Why Should We Need to Seek Less Volatility While Investing?

i) Lower the Volatility of Investment Product, Higher are the Chances of remaining invested even during correction times.

ii) With Lower Volatility, the Minimum Period to ensure that you don’t incur a loss in your SIP Investment goes down.

How the Volatility of Equity Investing can be Reduced?

  • During volatility in the market, it creates a panic situation among retail investors where they react to such ups and downs and ultimately affects their portfolio.
  • Now, Let’s look over the solutions to control our emotions during volatility and not to harm our portfolio:

i) Regular Investment:

  • If one is unable to bear the peaks and valleys of the market, he/she should not invest directly in stocks.
  • But, an Investor should invest through SIP mode.
  • As individual stocks are more volatile as compared to overall fluctuations in NAV of any equity mutual fund.

ii) Invest in Large Cap Companies:

  • Since Volatility of Large-Cap Companies is much lesser than that of Mid & Small Cap Companies.

iii) One should choose Equity Mutual Funds which offer Lower Volatility.

iv) Invest in Index “Nifty 100 Low Volatility 30 Index”:

  • One can also look forward to this index named “Nifty 100 Low Volatility 30 Index” if he/she wants to invest in Low Volatile stocks.
  • This index comprises the 30 least volatile stocks in the Nifty 100.
  • It is a subset of the Nifty 100 Index.
  • In this index, a stock with lower volatility is ascribed to a higher weight.

Past Decade Performance: Nifty 100 Low Volatility 30 Index Vs Nifty 50:

  • The Nifty 100 Low Volatility 30 Index has outperformed the Nifty Index by 2.7% in the past decade.
  • The Nifty 100 Low Volatility 30 Index has generated 12.9% in the past decade while Nifty 50 has been able to deliver returns of only 10.2%.

Comparing Returns:

  • Now, we will compare the Total Returns of the Nifty 100 Low Volatility 30 Index and the Nifty 50 in the past decade.
  • Total Returns will include Captial appreciation plus Dividend.
  • Nifty 100 Low Volatility 30 Index has delivered a phenomenal total return of 14.9% viz-a-viz Nifty 50 has produced a total return of just 12%.
  • In the case of Total Returns also, the Nifty 100 Low Volatility 30 Index has outscored Nifty 50 by 2.9%.
  • During the fall of March 2020, Nifty 50 got corrected by 38% while the Nifty 100 Low Volatility 30 Index got corrected by 31% in the same period presenting the outperformance of the index over the Nifty 50 Index by a notable 7%.
  • In the context of volatility, Annualized Standard Deviation over the past 10 years of Nifty 50 Low Volatility 30 Index is 14.5%, whereas Nifty 50 is having 3% more Standard Deviation than this index i.e., 17.5%.
  • Nifty 100 Low Volatility 30 Index is also ahead in terms of Risk-Adjusted Return. Nifty 50 Low Volatility 30 Index is having a Risk-Adjusted of 0.9% whereas the Nifty 50 has a Risk-Adjusted of just 0.6%.

Comparing Sectoral Weightages:

  • Nifty 50 has the biggest allocation of 39.5% in Financial Services. On the other hand, the Nifty 100 Low Volatility 30 Index is having only allocated 8.6% towards Financial Services.
  • The major reasons behind low volatility in this index are because it is having a very low allocation to Banking and Financial Services compared to Nifty 50.
  • There is high volatility in Banking and Financial Services Industry. For Instance, in March 2020 Fall, Bank Nifty fell by more than 50%.
  • Nifty 100 Low Volatility 30 Index has more allocation towards Consumer Goods Sector i.e., 26.1% while Nifty 50 has only 10% allocation in this sector.
  • Both the Index is having a similar rate of allocation in IT services. Nifty 100 Low Volatility 30 Index allocates 16.4% in the IT sector whereas Nifty 50 allocated 15.7 in this sector.
  • In Auto Sector, allocation of Nifty 100 Low Volatility 30 Index and Nifty 50 is 10% and 5.6% respectively.
  • In the Power sector, allocation of Nifty 100 Low Volatility 30 Index and Nifty 50 is 7.8% and 1.7% respectively.
  • Further, the Nifty 100 Low Volatility 30 Index has allocated 7.6% towards the Cement sector. On the other hand, Nifty 50 has allocated only 2.4% towards this capital-intensive industry.
  • Allocation of Nifty 100 Low Volatility 30 Index in Oil & Gas Sector and Pharma sector is 6.7% and 6.2% respectively. And in the same industries, Nifty 50 have allotted 12.8% & 3.2% respectively.

Top 10 Holdings of Nifty 100 Low Volatility 30 Index (As of Feb-21):

The Top-10 holdings of the Nifty 100 Low Volatility 30 Index in terms of weightage are as follows: Power Grid Corporation of India (4.13%), Dabur India (3.97%), UltraTech Cement (3.96%), Indian Oil Corporation Limited (IOCL) (3.92%), Bajaj Auto Ltd. (3.79%), NTPC Limited (3.69%), ACC (3.67%, Pidilite Industries (3.71%), Wipro (3.53%), and TCS (3.52%).

Conclusion:

Equity inherently is a volatile asset class. So, the volatility cannot be eliminated, but it can certainly be moderated with certain measures. For investors who want to participate in the equity market, one can go through the modes mentioned above. Also, Indices like the Nifty 100 Low Volatility 30 Index or others should be tracked by investors to invest in equity and mitigating volatility of the market.

 

 

 

 

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