All that glitters is not quality

The world of investment can often be at odds with the real one. For instance, being inactive or lazy in the investment world can help you make big gains, which seems counterintuitive to everyday logic. Celebrating bad news is another example. In the real world, a negative piece of news is rarely a cause for celebration. But in finance, bad news can drag stock prices, presenting buying opportunities for savvy investors. The same can be said of quality indices that have cropped up in recent years. In contrast to the real world, where quality always wins, it's not always true in investing. Although quality indices in India pick stocks based on robust parameters such as ROE (return on equity), debt-to-equity (a financial leverage ratio for the non-banking companies), EPS (earnings per share) and earnings growth trajectory based on the last five years, this may not always be a winning strategy. Let's see how. Selecting quality indices Only three quality indices made the cut based on the below criteria: Indices that are at least three years old Indices that consider the quality score of stocks as the sole parameter Quality indices: An overview Index Parent index Launch date Base date No. of index funds/ETFs Worth of AUM (Rs crore) Nifty1