Does the Low Volatility Anomaly Work in India ?

Let's cut to the chase. Yes, it does. And a picture is worth a thousand words. Let's look at the graphs of the Nifty Low Volatility 50, Nifty LargeMidCap 250 and Nifty High Beta 50 indices. So Rs. 100 invested in the Low Volatility 50 index in 2005 would have grown to Rs. 1,175 while the same amount invested in the High Beta Index would have grown to only Rs. 170. And the same amount invested in the LargeMidcap Index would have grown to approximately Rs. 1,000.

All these indices are rebalanced either quarterly or every six months. For eg, the Nifty Low Volatility 50 index, takes the top 300 companies by market capitalization and some other criteria, sorts them by volatility and takes the 50 companies with the lowest volatility. The High Beta index does the opposite. It takes the companies with the highest volatility.

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Look at the chart again and see the yawning gap between the High Beta and Low Volatility Index. Next week, we will look at why this anomaly exists.

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Have a good weekend and wishing everybody a very happy 75th Independence Day. And may the next 75 years be even more glorious and prosperous for India and the world.

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Regards,

Anish