DSP Mutual Fund has launched India’s first Nifty Top 10 Equal Weight Index Fund & ETF, which would invest equally in top 10 Indian companies in Nifty by free float market capitalisation. The DSP Nifty Top 10 Equal Weight Index Fund & DSP Nifty Top 10 Equal Weight ETF aims to capitalise on the relatively better valuations of Top 10 stocks compared to Nifty 50 & Nifty 500 based on metrics like p/e ratio, return on equity and return on assets ratios. The New Fund Offer will open on August 16 and will close on August 30th, 2024.
The fund’s goal is to take advantage of the relatively better valuations of these top 10 stocks compared to broader indices like the Nifty 50 and Nifty 500.
The Nifty Top 10 Equal Weight Index has consistently outperformed the Nifty 50 and Nifty 500. It has delivered better returns in 9 out of the last 16 years.
The top 10 stocks are currently undervalued, meaning their current market price is lower than their intrinsic value. This undervaluation has led to their weight as a percentage of the total market capitalization being at an all-time low.
These stocks have not been performing well in the last four years. However, historical data indicates that this trend could potentially reverse in the future.
It is noteworthy that when the three-year historical alpha, which measures a stock’s performance compared to a benchmark, is negative, the forward alpha for the Nifty Top 10 Equal Weight Index frequently becomes positive. This suggests that there may be a turnaround in the performance of these undervalued stocks.
Portfolio at a glance
1. The Nifty Top 10 Equal Weight Index has outperformed broader markets in 9 out of 16 years.
2. The index shows 1.5 times higher Return on Equity than the Nifty 500 Index.
3. It has a return on equity (RoE) 1.5 times higher than the Nifty 500 Index, based on FY 2024 data.
4. About 49% of Nifty 50 profits come from these top 10 stocks.
