Amid high valuations in small&mid-caps, DSP MF launches India’s first ever funds based on Nifty Top 10 Equal Weight Index
Mumbai, August 14, 2024.
DSP Mutual Fund has launched India’s first ever Nifty Top 10 Equal Weight Index Fund & ETF, which invests equally in top 10 Indian companies in Nifty by free float market capitalization. The DSP Nifty Top 10 Equal Weight Index Fund &DSP Nifty Top 10 Equal Weight ETFaims to capitalize on the relatively better valuations of Top 10 stocks compared to Nifty 50 & Nifty 500based on metrics like p/e ratio, return on equity and return on assets ratios.
Nifty Top 10 Equal weight index has outperformed Nifty 50 Index & Nifty 500 Index on long term as well as rolling basis across different time periods.Nifty Top 10 Equal Weight Index has outperformed the broader market in 9 out of 16 years. Currently, Top 10 companies are well placed as the weight of top 10 stocks as % of total market capitalization is at an all-time low. Top 10 stocks have also underperformed in the last 4 years vs other broader indices/ active funds.However, data suggests that when the three-year historical alpha is negative, the forward alpha for the Nifty Top 10 Equal Weight Index tends to be positive, indicating potential for a turnaround.
In terms of portfolio quality, The Nifty Top 10 Equal Weight Index has 1.5 times higher Return on Equity than the Nifty 500 Index.Based on FY 2024 data, ~49% of profits of Nifty 50 stocks are contributed by the constituents of Nifty Top 10 Equal weight Index.
The New Fund Offer for DSP Nifty Top 10 Equal Weight Index Fund &DSP Nifty Top 10 Equal Weight ETF will open for subscription on August 16th, 2024, and will close on August 30th, 2024.
“While we have seen increasing level of interest in small and mid-cap stocks, the very large and mega cap stocks appear to be trading at relatively more attractive valuations. Sound investing principles suggest that it is always better to invest where there is a relatively lower valuation and margin of safety. Hence, we are considering an index which will have the largest ten stocks, in an equal weight strategy. The Nifty Top 10 Equal Weight Index can be part of long-term portfolios as it provides exposure to the largest companies which can help to reduce drawdowns during downturns and can also generate better returns over the long term,” said Anil Ghelani, CFA, Head – Passive Investments & Products, DSP Mutual Fund.