Both intuition and experience with the Quality factor are extremely strong. At the same time, one needs to choose the best parameters to ascertain the presence of quality carefully. The goal is clearly to target stocks that exhibit superior profitability parameters and generate value for the shareholders through various markets and business cycles. These include profitability, cash flow, and related attributes like Return on Investment, Return on Capital Employed, Dividend Payout, Interest Coverage among others that are derived from a company's financial statements.

With these parameters, there is often a need to measure the performance of financials and non-financials differently and look at sector-specific ratios for them.

The NJ Quality+ model uses a combination of quality metrics to categorise and rank stocks. The quality parameters used are leverage, return on equity (ROE) and dividend payout ratio.The NJ Quality+ model chooses the Top 100 stocks with the highest quality characteristics from the Top 500 stocks by free-float market cap universe and constructs an equal weighting model.

We have also created a Low Quality Model Portfolio which is similar in construction to the NJ Quality+ but chooses the Bottom 100 lowest quality stocks. This would help us in comparing the risk and return of high quality vs low quality stocks.

The models display the following characteristics vis-a-vis the benchmark Nifty 500 TRI.

• Source : Internal research, Bloomberg, CMIE, National Stock Exchange.

• Factor parameters calculated as on 30th November 2023.

• For Nifty 500 TRI, NJ Quality+ Model and Low Quality Model factor definitions are the average of its constituents.

• ROE is calculated by dividing the net income with the shareholders equity.

• ROCE is calculated by dividing the profit before interest & taxes by capital employed.

• Dividend Payout is calculated by dividing the dividend paid by profit after tax.

• Current Ratio is calculated by dividing the current asset by current liabilities.

• Debt to Equity is calculated by dividing the total liabilities by total shareholders equity.

• Outliers are not considered while calculating the numbers.

• Past performance may or may not be sustained in future and is not an indication of future return.

• NJ Quality+ Model 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.

 

 

• Source : Internal research, Bloomberg, CMIE, National Stock Exchange.

• 5-Yr CAGRs are calculated for the period 30th September 2006 to 30th November 2023 and have been rolled on a daily basis.

• Past performance may or may not be sustained in future and is not indication of future return.

• NJ Quality+ Model is a proprietary methodology developed by NJ Asset Management Private Limited.

 

 

• Source : Internal research, Bloomberg, CMIE, National Stock Exchange.

• 10-Yr CAGRs are calculated for the period 30th September 2006 to 30th November 2023 and have been rolled on a daily basis.

• Past performance may or may not be sustained in future and is not indication of future return.

• NJ Quality+ Model 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.

One can see from the charts above that while there is some cyclicality in the performance of the quality factor, it appears to sustain a more stable relationship with the index. As with all other factors, efforts to improve the way quality is measured are continuously underway among academics as well as practitioners.

 

 

• Source : Internal research, Bloomberg, CMIE, National Stock Exchange of India

• CAGRs are calculated as the average CAGR based on the rolling CAGRs (rolled daily) calculated for the respective holding periods i.e. 1, 3, 5, and 10-Yr rolling CAGRs. The period for calculation is 30th September 2006 to 30th November 2023.

• Past performance may or may not be sustained in future and is not an indication of future return.

• NJ Quality+ Model 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.

 

 

•  Source : Internal research, Bloomberg, CMIE, National Stock Exchange of India

• The Return/Standard Deviation ratios have been calculated by dividing the respective rolling returns (rolled daily) by the standard deviation of the corresponding rolling returns, calculated over the period 30th September 2006 to 30th November 2023.

• Past performance may or may not be sustained in future and is not an indication of future return.

• NJ Quality+ Model 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.

 

 

• Source: Internal research, Bloomberg, CMIE, National Stock Exchange of India

• Calculations are for the period 30th September 2006 to 30th November 2023.

• The Drawdown for a specific date has been calculated by dividing that day’s NAV of NJ Quality+ Model 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 indication of future return.

• NJ Quality+ Model 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.