Explained | Why the Nifty200 Value 30 ETF is a smart bet in today's market

Recent market corrections have left investors searching for safe yet rewarding opportunities. In volatile times, value investing tends to shine, and Nifty200 Value 30 ETF presents an ideal opportunity to capitalise on undervalued stocks.

This new smart beta exchange-traded fund provides exposure to top value stocks, making it a great option for those looking to enter or rebalance their portfolios amidst market fluctuations.

What is it?

Nifty200 Value 30 ETFs track the Nifty200 Value 30 Index, a collection of the top 30 value stocks from the broader Nifty 200 index.

Value as a smart beta factor is well-established, with value investing centred around identifying stocks trading below their intrinsic value, thus offering high long-term potential.

The thesis is simple: Buy undervalued stocks, wait for the market to correct the mispricing, and sell stocks when valuation becomes expensive.

Currently, value stocks are trading at attractive valuations. The large-cap stock-oriented Nifty200 Value 30 index trades at a whopping 50 per cent discount both in terms of price to earnings (12.7 times P/E) and price to book valuations (1.99 times P/B) compared to the Nifty200 parent index.

At the same time, the value index offers a strong dividend yield of 2.8 per cent (nearly 3 times of Nifty200), thus providing strong income potential for investors.

The historical performance of value stocks has been robust.  For instance, the Nifty200 Value 30 TRI has outperformed Nifty 200 TRI 6 times in the last 10 years, with the extent of alpha being over 10 percentage points in many cases. Since ETFs track the underlying indices closely, investing in a Nifty200 Value 30 ETF could potentially be a profitable investment.

Constructed by making a portfolio of 30 companies with higher earnings to price ratio (E/P), book Value to price ratio (B/P), sales to price ratio (S/P) and dividend yield, the Nifty200 Value 30 also offers sectoral diversification across industries such as Financial Services, Oil & Gas, Metals, and Power.

This diversification helps reduce the risk of being overly concentrated in one sector, providing a balanced approach to value investing. This also ensures that your investment is in industries that have consistently weathered market volatility.

Key benefits

The Nifty200 Value 30 index, and by extension, ETFs tracking the basket will focus on companies with strong financial fundamentals that are currently trading below their true value. This provides an opportunity for long-term capital appreciation as the market corrects its pricing.

With the market corrections we’re seeing recently, value investing shines as a strategy to “buy low” and “hold” for future returns. Hence, the index offers a ready-made play and a timely option for investors looking to capitalize on mispriced stocks during uncertain market conditions.

By focusing on stable value stocks, the index provides a low-risk option ideal for conservative investors seeking to balance growth with reduced volatility.

Why ETF route?

A  Nifty200 Value 30 ETF is passively managed, meaning it tracks an index rather than relying on stock-picking. So, this route potentially results in a much lower expense ratio compared to actively managed value-oriented funds.

Unlike actively managed funds, which depend on the fund manager’s skills and market timing, an ETF follows a disciplined, rules-based approach. For instance, each stock in the value index is capped at the lower of 5 per cent or five times the weight of the stock in the index.

Additionally, index review and rebalancing occur on a semi-annual basis. Such rules reduce the risk of human bias and ensure that the portfolio remains focused on value stocks over time.