Are Smart Beta Investing Strategies Profitable in Indian Equity Market? – A Comparative Study

Abstract

This study investigates the efficacy of Smart Beta investing strategies in the Indian equity market by comparing their performance to traditional market-capitalization-weighted index over a five-year period from 2019 to 2024. We focus on various Smart Beta approaches, including equal weight, dividend opportunities, low volatility, and quality factors, to analyze risk-adjusted returns using metrics such as CAGR, Sharpe Ratio, Treynor Ratio, Beta, and Jensen's Alpha.

Our findings reveal that most Smart Beta indices demonstrate better risk-adjusted performance compared to the benchmark Nifty 50 Index. Several indices exhibit positive Jensen's Alpha, indicating potential excess returns, while generally displaying lower beta values, which suggests reduced exposure to market risk.

This research contributes to the growing literature on factor investing in emerging markets, with a specific focus on the Indian context. Our results challenge the efficient market hypothesis by showing that Smart Beta strategies can enhance risk-adjusted returns. These findings provide valuable insights for investors and fund managers aiming to optimize portfolio performance and achieve improved diversification in the Indian equity market.