Application of multi-criteria decision analysis for investment strategies in the Indian equity market


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In the Indian equity market, the Systematic Investment Plan (SIP) is the most popular strategy due to its convenience for disciplined investing regardless of market conditions. This study analyzes the excess returns of an extensive dataset of listed Indian companies from 2010 to 2019, along with a value-based version of the Multi-Criteria Decision Analysis (MCDA), to identify top performing stocks, based on their sectors and market capitalization. The findings of the study provide empirical evidence of Value Averaging (VA) as a viable alternative strategy over SIP (also known as Dollar Cost Averaging or Rupee Cost Averaging) as 352 out of 359 companies yielded higher returns under VA. The superiority of the VA strategy over the SIP was particularly marked in the consumer goods, financial services and industrial manufacturing sectors, with a clear dominance of small cap companies. The results also show that risk factors for VA strategy play an important role and should be taken into account, rather than base investment decisions on excess returns alone. The efficiency scores of individual stocks provide important insights for mutual funds, financial brokers and individual investors in India.

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    • Table 1. Sample of stocks listed on the NSE according to market capitalization
    • Table 2. Excess returns (VA XIRR – SIP XIRR) according to market capitalization: Frequency
    • Table 3. Mean excess return (VA XIRR – SIP XIRR), in percentage points according to market capitalization and sectors
    • Table 4. Frequency table for 10-year excess returns > 3 ppt according to market capitalization and sectors
    • Table 5. Comparison of rankings of highest performing companies
    • Table 6. Comparison of rankings of highest performing companies by market capitalization
    • Table A1. Systematic Investment Planning (SIP) and Value Averaging (VA). Illustration of the Systematic Investment Plan – a hypothetical example with three market scenarios, where a fixed amount of INR 20,000 is invested for four months under SIP
    • Table A2. Illustration of the Value Averaging Strategy – similar market scenarios under the VA strategy, wherein the investor seeks a monthly increase of INR 20,000 in the portfolio value
    • Formal Analysis
      Sudipa Majumdar, Rashita Puthiya
    • Methodology
      Sudipa Majumdar
    • Writing – original draft
      Sudipa Majumdar, Rashita Puthiya
    • Writing – review & editing
      Sudipa Majumdar, Rashita Puthiya
    • Data curation
      Rashita Puthiya, Nandan Bendarkar
    • Conceptualization
      Nandan Bendarkar
    • Validation
      Nandan Bendarkar