Kotak Nifty Alpha 50 ETF; factor-based investing is booming in India: Report

Factor-based investing is becoming popular in India. Mutual funds are creating schemes that track groups of stocks based on different factors like quality, value, alpha, volatility, and momentum. One such fund is the Kotak Nifty Alpha 50 ETF (KNA50), which has seen a remarkable 86% return over the past year.

KNA50 selects its stocks based on alpha, which measures a stock's performance against the market, among the 300 largest listed stocks in India. It also considers the average daily turnover for the last six months. Essentially, it picks stocks that have shown strong performance compared to the market.

Satish Dondapati, a fund manager at Kotak Mahindra AMC, highlighted that the financial services sector makes up 28% of the index, with many government-owned companies like PFC, REC, IRFC, and PNB contributing significantly to the index returns by delivering returns ranging from 100% to 400% over the last year.

In the latest rebalancing exercise in March 2024, the NSE replaced 12 stocks in the Nifty Alpha 50 Index. The top 10 stocks in the KNA50 portfolio include Suzlon Energy, Indian Railway Finance Corporation, Kalyan Jewellers India, Rail Vikas Nigam, Adani Green Energy, REC, Adani Power, Bharat Heavy Electricals, and Trent. These stocks are selected based on their performance and turnover in the market.