Market regime changes to low volatility as defensive factors outperform: PL Asset Management

PL Asset Management’s advanced quantitative models indicated a shift in the market regime toward low volatility, which suggests that less volatile securities are poised to perform well.

This shift highlights that defensive factors and investment styles are currently outpacing more aggressive ones.

According to the report, the Nifty 200 Quality 30 index generated returns of 2.40%, while the Nifty low-volatility 50 delivered 1.73% in August, both exceeding the benchmark Nifty 50’s return of 1.14%.

In contrast, the Nifty Alpha 50, which represents the momentum factor, returned just 0.31%. Meanwhile, the Nifty 500 Value 50 saw a decline of 1.19%, and the Nifty High Beta fell by 4.29%.

“The performance data from June and July had already hinted at a transition toward quality and low volatility, which has now solidified as the regime shifted in August,” said PL Asset Management.Also read: Will festival season drive the next auto rally? Sandip Sabharwal answers“Equities remain the favored asset class, with ~80% of stocks near their highs and the Nifty hitting new peaks in one-third of CY24 sessions,” said the asset management company while also stating that its quant models indicate a global shift towards gold, which is gaining momentum.

According to these quant models, the broader equity markets seem expensive but are not highly overvalued, with 45% of stocks trading above their 3-year average price-to-book ratio.

The Nifty 50’s trailing P/E of 23.2x is 5% above its 3-year average. In contrast, small-cap and mid-cap indices trade at trailing P/E ratios of 31.6x and 43.6x, with premiums of 12% and 30% over their 3-year averages.

The overall investor sentiment has remained positive, with the BSE market cap reaching record levels. Nifty Pharma and Healthcare were the best-performing sectors in August, gaining 6.6% and 5.5%, signalling a shift to defensives.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)