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Factor Performance Across Different Macroeconomic Regimes in India Find out how factor strategies in India stacked up to their benchmark.
BY Akash Jain

In response to increasing interest in smart beta strategies in the Indian equity market, this paper examines the performance of six factors—value, momentum, quality, low volatility, dividend, and size (small cap)—across different business cycles, market cycles, and investor sentiment regimes in India from October 2005 to June 2017.

• Over the period studied, all six factor portfolios outperformed the S&P BSE LargeMidCap. The low volatility and quality factors showed reduced return volatility and the rest of the factors had more volatile return.

• Quality and low volatility factors tended to be more defensive, while the dividend, value, and size factors displayed procyclical characteristics across different macroeconomic regimes.

• Single-factor portfolios could potentially act as tools for implementation of active views, or alternatively they could be blended in multifactor porfolios that aim to deliver smoother excess return across business and market cycles.

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