A one-year-old quantitative fund has beaten most of its peers and the overall Indian stock market with a rules-based system designed to avoid poor performers.
“This is a fund that is positioned for not losing first,” said Kalpen Parekh, president of DSP Investment Managers Pvt. The DSP Quant Fund has lost 2.7% over the past 12 months, compared with a 14% slide in the benchmark S&P BSE Sensex. The ₹220 crore fund has beaten 92% of its peers over the past year.
Starting with a universe of India’s 200 biggest companies, the fund’s selection methodology eliminates stocks that have shown high price volatility over time or which raise red flags when subjected to forensic accounting. That cuts the list by more than half. The system then scores the remaining stocks based on factors, giving weightings of 40% each to quality and valuation, and 20% to growth. The highest scoring stocks are included in the portfolio, which is rebalanced every six months.
“The process of eliminating first stands out because your chances of outperforming in the Indian market are enhanced when you remove stocks that are not consistent in certain metrics,” said Vidya Bala, head of research and co-founder at Chennai-based Primeinvestor.in. “It gives you some cushion particularly when the market is volatile.”
Quant funds have struggled to deliver globally during the pandemic, hurt by spikes in volatility and choppy rotations. Even Renaissance Technologies, the oldest and most profitable firm in this niche, is going back to the drawing board to revise its models. It’s still a nascent category in India, where the bulk of assets continue to be managed actively.
The India NSE Volatility Index remains around 30 after spiking into the 80s amid the market plunge in March. The Sensex has rebounded 30% from that trough, compared with a 25% gain for DSP’s quant fund.
Parekh acknowledged that the fund could underperform the overall market in its bullish phase as the economy reopens. That’s largely due to DSP’s strategy of filtering out more volatile stocks.
“Whenever there are turning points in the market, this fund will lag behind in the first leg,” he said, “But that’s fine, you don’t go to every party on a Friday night, you have a few groups you are comfortable with.”