Analysis and development of a hybrid investment strategy for the Indian stock market

Abstract

There are many investment strategies that have been rigorously analysed and tested in US Stock Markets, and many of these claim to deliver superior results when compared to the Index. In this report we tried out many of these techniques in the Indian Context, some of which are ‘Dogs of the Dow Technique’, ‘The Foolish Four Technique’, ‘The Magic Formula’ by Joel Greenblatt as well as investment strategies proposed by popular gurus such as Benjamin Graham in his book, ‘The Intelligent Investor’. Although many of these strategies yielded superior results to the index during some years, they underperformed during others. Based on our analysis and qualitative inferences, we then proceeded to conduct a correlation analysis to identify critical factors indicative of stock potential. Based on the above analysis and qualitative arguments, we then developed 9 Hybrid Investment Strategies that were analysed over the last 5 years in comparison to the Index. Of these 9 strategies, we have essentially identified two strategies; one that we believe will cater adequately to the needs of the conservative or Risk Averse Investor, and the other that we believe will cater adequately to the demands of an enterprising investor.