One of the concerns when using momentum is the propensity of a moving stock to “recoil” sharply when it reaches a turning point.

The most popular way of overcoming this is to use a lag between the time when momentum is studied and when it is acted upon. This allows the “recoil”, if it happens, to manifest and lower the acquisition cost of the stock.

In developing our momentum indicator, we studied various time periods between 1 and 12 months of standalone and comparative momentum. We studied these both with and without different lag periods from 5 days to 1 month. We also studied various holding periods for our resultant portfolio ranging from 3 to 12 months. In studying these, transaction costs were incorporated into the process to allow for a robust comparison of the outcomes achieved.

Our current methodology provides a balance between managing portfolio churn, factor decay and scalability.

The NJ Momentum 100 Portfolio, an equal-weighted portfolio of 100 stocks, is constructed by tilting the float-adjusted capitalisation-weighted Nifty 500 TRI, the parent index, towards 100 constituents with highest ranks based on our momentum methodology.

  3M Momentum (%) 6M Momentum (%) 9M Momentum (%)
NJ Momentum 100 Portfolio 2.31 16.70 40.00
Nifty 500 TRI -2.69 8.72 18.96
  • Source: Internal research, Bloomberg, National Stock Exchange
  • Factor parameters calculated as on 31st December 2021
  • For Nifty 500 & NJ Momentum 100 Portfolio factor definitions are the average of its constituents.
  • Momentum is defined as the total return of price of the securities for their respective time period.
  • Past performance may or may not be sustained in future and is not an indication of future return.
  • NJ Momentum 100 Portfolio is a proprietary methodology developed by NJ Asset Management Private Limited. The methodology will keep evolving with new insight based on the ongoing research and will be updated accordingly from time to time.

  • 1-Yr Excess returns are calculated as the difference of the NJ Momentum 100 Portfolio returns and Nifty 500 TRI returns on a yearly basis for the period January 2003 to December 2021. The average 1-Yr excess return is calculated as the arithmetic average of 1-Yr excess returns over the period.
  • Past performance may or may not be sustained in future and is not an indication of future return.
  • NJ Momentum 100 Portfolio is a proprietary methodology developed by NJ Asset Management Private Limited. The methodology will keep evolving with new insight based on the ongoing research and will be updated accordingly from time to time.

As the charts indicate, momentum has been a consistent outperformer across various time periods which make it one of the most important factors in India. Since it offers the widest range of options to calculate and determine its presence, implementations of momentum differ very widely across the world and even within India. Combined with its fickle nature, the search for the most efficient and consistent way to measure momentum promises to be a long one.

  • The Compounded Annualised Growth Rates (CAGRs) have been calculated using the daily NAVs of NJ Momentum 100 Portfolio and the Nifty 500 TRI. All the CAGRs have been calculated as on 31st December, 2021.
  • Past performance may or may not be sustained in future and is not an indication of future return.
  • NJ Momentum 100 Portfolio is a proprietary methodology developed by NJ Asset Management Private Limited. The methodology will keep evolving with new insight based on the ongoing research and will be updated accordingly from time to time.

 

  • The Return / Standard Deviation Ratios have been calculated by dividing the CAGR of NJ Momentum100 Portfolio and Nifty 500 TRI by their respective standard deviations. Standard Deviations for NJ Momentum100 Portfolio and Nifty 500 TRI have been calculated using the weekly returns on the NJ Momentum100 Portfolio and Nifty 500 TRI, respectively. Standard deviations are annualised standard deviations. All the ratios have been calculated as on 31st December, 2021.
  • Past performance may or may not be sustained in future and is not an indication of future return.
  • NJ Momentum 100 Portfolio is a proprietary methodology developed by NJ Asset Management Private Limited. The methodology will keep evolving with new insight based on the ongoing research and will be updated accordingly from time to time.

  • The Drawdown for a specific date has been calculated by dividing that day’s NAV of NJ Momentum 100 Portfolio and Nifty 500 TRI by their peak NAVs up to that date, respectively.
  • Past performance may or may not be sustained in future and is not an indication of future return.
  • NJ Momentum 100 Portfolio is a proprietary methodology developed by NJ Asset Management Private Limited. The methodology will keep evolving with new insight based on the ongoing research and will be updated accordingly from time to time.
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