Innovative investment strategies drive India's factor booms with the Kotak Nifty Alpha 50 ETF

Factor-based investment strategies are gaining traction in India. Mutual funds are devising schemes that monitor clusters of the stock market based on various factors such as quality, value, alpha, volatility, and momentum. The India's factor boom, Kotak Nifty Alpha 50 ETF (KNA50) is a prime example of such a fund, boasting an impressive 86% return over the previous year.

Kotak Nifty Alpha 50 ETF (KNA50) curates its portfolio based on alpha, a metric that gauges a stock's market performance, from among the top 300 listed stocks in India. It also takes into account the average daily turnover over the past six months. In essence, it selects stocks that have outperformed the market.

Satish Dondapati, a portfolio manager at Kotak Mahindra AMC, underscored that the financial services sector constitutes 28% of the index. Numerous government-owned corporations such as PFC, REC, IRFC, and PNB have significantly influenced the index returns, yielding returns from 100% to 400% in the past year.

During the recent rebalancing exercise in March 2024, the NSE substituted 12 stocks in the Nifty Alpha 50 Index. The KNA50 portfolio's top 10 stocks comprise Suzlon Energy, Indian Railway Finance Corporation, Kalyan Jewellers India, Rail Vikas Nigam, Adani Green Energy, REC, Adani Power, Bharat Heavy Electricals, and Trent. These stocks are chosen based on their market performance and turnover.