Archive for December, 2012

ORMI India 30 @ New Historical high

ORMI India 30 is at a new historical high. This is a clear sign that the worst performers have started to deliver. The ORMI India 30 has delivered 7.5% annualized return. And if Nifty’s 13.74% returns for the last 12 months excite you, we have a few observations for you. One, Nifty was at a low in Jan 2012 while ORMI India 30 was at a high. Second, the comparison between NIFTY 50 and ORMI India 30 pales in favor of ORMI India 30 when we look at 2 year performance rather than one year. The 2 year return for ORMI India 30 is 27% compared to -3.7% for Nifty.  Third, we have been unequivocally positive about India consistently. So if you think you could have better this year with NIFTY investment, we said so. We have a few new entries and ORMI is invested in 27 stocks. The portfolio has 8.42% cash.

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Indexing: The INDIA 30 Orpheus Risk Management Index (ORMI) is based on proprietary algorithm.

The indices values that are disseminated today are broadly based on market capitalization methodology. Market capitalization methodology has been challenged globally for a few broad reasons. 1) As an asset strengthens it is given more weight 2) As an asset weakens it is given lesser weight. This on one side captures momentum but on the other side suggests investors to focus more on growth compared to value. This increases portfolio risk when market growth slows down or reverses, as has been the case since 2007. When markets contract, the erstwhile top performers push into red for extended period of time causing large drawdowns and emotional pain.

The India 30 Index is based on the above extreme reversion idea i.e. outliers tend to reverse, which suggests that investing is about value picking and extremes are prone to reversion. Our Index extends and fine tunes the idea first mooted by De Bondt and Thaler in their 1981 paper suggesting that 3 year worst losers portfolio tends to outperform the 3 year best winners portfolio.

Coverage India: CNX100, BSE500 traded stocks and Indian Indices.

Ayushi has done her masters in economics from Delhi School of Economics and then completed her Post-Graduation in Finance from National Institute of Securities Markets. She completed her graduation in Economics from Lady Shri Ram College. A keen econometrician, Ayushi enjoys financial modeling and risk management.