A Quick Insight into the FREEDOM 100 Emerging Markets ETF 21Aug2025

A Quick Insight into the FREEDOM 100 Emerging Markets ETF 21Aug2025

 

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(The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)

 

 

 

In recent years, emerging markets have become an attractive option for investors looking for high growth potential. However, with increased opportunities often comes increased risk. 

 

For those looking to strike a balance between growth and stability, the FREEDOM 100 Emerging Markets ETF (FRDM) may be an option offering interesting possibilities and risk exposures. 

This fund targets emerging economies that are not only growing but also prioritise economic freedom. In this quick snapshot, we’ll take a closer look at what makes this ETF unique, its investment strategy and how it stands out in the world of emerging market funds.

The FREEDOM 100 Emerging Markets ETF (Ticker: FRDM) is an exchange-traded fund designed to track the performance of emerging markets with a focus on those that are considered relatively stable, investor-friendly and show a higher level of economic freedom.

The ETF aims to invest in a subset of emerging markets that are not only growing but also prioritise individual freedom and economic policies that encourage entrepreneurship, free markets and openness.

The fund seeks to track the total return performance of the Life + Liberty Freedom 100 Emerging Markets Index, a freedom-weighted emerging markets equity strategy using personal and economic freedom metrics as primary factors in its investment selection process. 

Top countries

Country-wise Weights in the Freedom 100 EM ETF:

 

 

Top five countries in the ranking, as of date, are: Taiwan, Chile, South Korea, Poland and South Africa.

 

While India is ranked third with a weight of nearly 17 per cent in the MSCI EM Index, in the Freedom 100 EM ETF, India is ranked a poorly tenth with a negligible weight of 1.76 per cent. 

 

This is due to the fact India ranks low in terms of economic freedom and civil liberties, compared to countries like Chile, Taiwan, South Korea, Poland and South Africa. 

 

It is worth noting that the total market capitalisation of Indian stock market is Rs 455 lakh crore or USD 5.25 trillion, which is much larger than that of any country present in the Freedom Index. 

 

Despite the overwhelming market cap of Indian equity markets, the country's weight in the Freedom 100 EM ETF is abysmally low. 

 

China, Saudi Arabi and Russia do not find a place in this ETF due to obvious reasons of lack of freedom and civil liberties in these countries. 

 

 

Top Ten Stocks

 

As on date, there are 120 stocks in the index. The top five holdings have a weight of 28.2 per cent, while the top ten contribute to 43.8 per cent -- indicating moderate concentration risk of the ETF / index, but higher compared to the MSCI EM index. 

 

The ETF is classified as a diversified fund, meeting the requirements of US SEC.  

 

The top 10 stocks are:

 

 

 All six Indian listed stocks that find a place in the index are:

 

 

Salient Features of the ETF / Index

 

Companies with 20 per cent or more state ownership (SOEs) are excluded. The maximum weight of a single stock is capped at 8 per cent at the time of rebalancing -- to prevent single security risk. The index is rebalanced annually. 

The ETF was started on 23May2019. It's traded on CBOE BZX exchange with ticker symbol FRDM. 

The ETF's assets under management (AUM) are USD 1.31 billion as on date. 

 

The top five sectors of the ETF are: information technology (29%), financial services (27.6%), consumer cyclical (13.4%), industrials (7.7%) and basic materials (6.6%) as per Morningstar data as of 30Jun2025.  

 

The index provider is Life + Liberty Indexes. Perth Tolle is the founder of Life + Liberty Indexes and creator of the Freedom 100 EM Index and ETF (FRDM).

 

The fund’s investment advisor is Empowered Funds LLC, doing business as ETF Architect.  

 

Expense Ratio is 0.49 per cent. The ETF has an annual turnover ratio of 20 per cent, which is much lower versus its comparables.  

 

The fund normally distributes its dividend income quarterly. Its dividend yield is 2.50 per cent.

 

Returns: On a one-year, three-year and five-year basis, the Freedom 100 Emerging Markets ETF has outperformed Diversified Emerging Markets average return, as per data from aaii.com.  

 

Its standard deviation is 18.2 per cent, higher than the benchmark EM index.  

 

 

Summary

 

In conclusion, the FREEDOM 100 Emerging Markets ETF (FRDM) stands out as a unique option for investors seeking exposure to emerging markets with a focus on stability and economic freedom. 

 

With solid returns and a diversified portfolio of stocks from some of the world's most promising and business-friendly countries, FRDM offers a balanced approach to get exposure to the potential of emerging economies.

 

As with any emerging market investment, FRDM is not without its risks. While the ETF focuses on countries with higher levels of economic freedom, it’s important to remember that emerging markets by nature are often more volatile than developed markets. 

These risks include political instability, currency fluctuations, and economic uncertainty in some of the underlying countries. Additionally, even though the ETF avoids the most high-risk nations, it still includes markets that may experience significant growth but can also face challenges like over-regulation or external economic shocks. 

As always, it’s crucial to conduct thorough research and consider your investment goals before adding an emerging market ETF to your portfolio. 

 

This isn’t investment advice. Even though the author is a CFA Charterholder with nearly 25 years of experience in the financial markets, this is just general insight—not a recommendation.

 

 

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References and additional data:

 

The FREEDOM 100 Emerging Markets ETF

Factsheet Jun2025 PDF

Presentation Jun2025 PDF

FRDM quote Google Finance 

CBOE BZX exchange volume / price data 

AAII ETF Evaluator - good overview

Morningstar page for FRDM 

 

Forex data bank - MSCI EM index (Update 06Jul2025 with chart 111) 

 

Tweet 18Feb2022 on the ETF 

 

Screenshot 1 showing method of selecting the universe of stocks >

 

 

 

Screenshot 2 showing ETF details, like top countries and stocks (data 30Jun2025) >

 

 

 

Screenshot 3 from FRDM presentation showing details of EM addition and deletions from MSCI EM index >

 

 

Screenshot 4 from FRDM presentation showing divergence of freedom levels among EMs - India is at the lower rung of the Freedom index (the Human Freedom Index 2024), much below other EMs, like, Taiwan, Chile, South Korea, South Africa, Malaysia and Mexico.

 

 

 

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Read more:

 

Blog of Blogs Theme-wise 

 

Weblinks and Investing

 

India Fixed Income Data Bank

 

Indian Economy Data Bank 

India Forex Data Bank 

 

Corporate Groups and Listed Companies 29Dec2024

 

Corporate Governance Concerns - Indian Companies 13Dec2024

 

Stocks and Peer Comparison by Industry 16Feb2024  

 

 

Under Podger Needed Help. I Just Needed a Torch. 20Aug2025

 

ADR / GDR Valuation for Indian Companies - Demystified! 18Aug2025 

 

Notes from Damodaran's Corporate Life Cycle Thesis 18Aug2025 

 

Nifty Midcap 150 Quality 50 Index: Has Quality Lost Its Edge? 10Aug2025 

 

How America Lives on Borrowed Money -- And Gets Away with It!  10Aug2025

 

Decoding the Nifty Midcap 150 Quality 50: A Midcap Strategy Built on Fundamentals 07Aug2025 

 

Ownership Trends in NSE-listed Universe of Stocks 31Mar2025 

 

India Loves Banks, America Loves Tech - What the Sectors Weight Say! 30Jun2025 

 

Nifty 50 Index Evolution Over a Decade 2015 to 2025 

 

NSE Emerging Indices Comparison 30Jun2025  

 

Passive Titans of India: The Top 10 Equity Indices by Fund Size 17Jul2025

  

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Disclosure:  I've got a vested interest in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.

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Uncle Podger Needed Help. I Just Needed a Torch.

Uncle Podger Needed Help. I Just Needed a Torch. 20Aug2025

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Back in college, over forty years ago, I remember reading a humorous essay called Uncle Podger Hangs a Picture by Jerome K. Jerome. 

 

In it, Uncle Podger attempts the simple task of hanging a picture on the wall — but what should have taken five minutes turns into a chaotic household affair involving the entire family. 

 

It was a classic lesson in how not to do things.

Last night, I had my own “picture moment” — only this time, the picture fell by itself at 2:30 AM. Unlike Uncle Podger, there was no commotion, no delegation and certainly no comedy.

 

Just one person, one torch and a quiet clean-up in the middle of the night.

What Happened

 

I had gone to bed around 11:30 PM. At approximately 2:30 AM, I woke up suddenly to a sharp, unmistakable sound — something that clearly looked like a shattering glass. 

 

What amazed me most was that I woke up despite wearing soft earplugs even at night — a habit I've maintained for years to manage the often noisy conditions typical of Indian neighborhoods. 

 

The sound was sharp enough to cut through and I got out of bed right away to check on things.

Getting out of bed, I went straight to my mother’s bedroom to ensure she was okay. She was fast asleep and completely undisturbed, which was a relief. As I turned from her room, I saw the issue: a wall-mounted picture in the living room had fallen.

The picture hadn’t hit the floor directly — it had first landed on a small table placed below it, which had a few books stacked on top. One book had also fallen to the marble floor along with the picture. 

 

The glass in the picture frame had shattered on impact and spread across the living room floor. The thread holding the frame had likely loosened over time and finally given way.

The Clean-Up

I began cleaning immediately. Since my mother was fast asleep in another room, I worked quietly to avoid disturbing her. I picked up the large glass shards by hand, swept the area with an old-fashioned broom thoroughly and then mopped the marble floor to remove any remaining debris.

Fortunately, I always wear slippers inside the house — a small habit that turned out to be quite protective in this situation, helping me avoid any accidental injury from unseen glass pieces.

After finishing the main clean-up, I turned off the lights and used my torch to inspect the floor. By holding the torch low to the ground at a near-horizontal angle, I was able to catch the reflection of several small glass pieces — four or five slivers that had been missed. 

 

I removed those carefully as well.

Only later did I learn that duct tape could be used to lift remaining glass particles. That’s a useful tip I plan to remember.

Aftermath

I finally returned to bed around 3:30 AM. But after the adrenaline and focus of the clean-up, I couldn’t fall asleep. I lay awake, just rolling in bed, until about 5:00 AM — when I finally drifted off for another two hours of rest.

Fortunately, there were no injuries and my mother remained peacefully asleep through the entire episode.

Reflection on Virtues and Investing

Last night’s unexpected cleanup reminded me how patience, discipline, simplicity, and long-term awareness play out not just in life’s small moments but also in investing. 

 

Just as I methodically dealt with broken glass — taking time, following a clear process and focusing on the basics — successful investing demands the same virtues.

Markets may throw surprises our way, but it’s the steady, patient approach over time that helps us avoid bigger troubles and reach lasting success.

P.S.: I briefly thought of taking a photo of the scene — the fallen picture, the scattered glass and the book on the marble floor — but in that moment, resolving the situation quietly and safely felt more important than documenting it. The focus was on cleaning up first. 

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ADR / GDR Valuation for Indian Companies – Demystified! 18Aug2025

ADR / GDR Valuation for Indian Companies – Demystified!  18Aug2025

 

Follow @vrk100

 

 

 

(The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)

 

 

 

Ever looked up an Indian company’s ADR listed in the US and wondered, “Wait, why is the price so different from what I saw on the NSE?”

If yes, you're not alone. ADRs (American Depositary Receipts) and GDRs (Global Depositary Receipts) often confuse investors—especially when the same company is trading at different prices in different markets.

In this post, let’s break down how ADRs and GDRs work for Indian companies, how they’re valued and why the numbers don’t always match what you see on Dalal Street.

 

NSE or National Stock Exchange of India Limited is a premier stock exchange in India, closely followed by BSE Limited. 

 

 

1. Definition 

 

What is an ADR?

ADR stands for American Depositary Receipt.

It’s a negotiable certificate issued by a US bank, representing shares of a foreign company (like an Indian company). ADRs are traded on US stock exchanges (like NYSE or NASDAQ) and they allow American investors to invest in foreign companies without dealing with foreign stock markets or currencies.

Think of an ADR as a "proxy" share that lets US investors own a piece of an Indian company, in dollars, via US markets. 

What is a GDR?

GDR stands for Global Depositary Receipt.

It’s similar to an ADR, but can be issued and traded outside the US, typically in European or other global markets (like the London Stock Exchange or Luxembourg Exchange). 

 

GDRs also represent shares of a foreign company and are used to attract international investors.

In short, GDRs are like ADRs—but more global in scope. 

 

 

2. Snapshot on Indian ADRs and GDRs: 

Section A: American Depositary Shares (ADR, also known as ADS or American Depositary Shares) of Indian listed companies are traded on the NYSE (their equity shares are traded on BSE/ NSE also).

Indian listed companies that have ADRs are:

1. Infosys Ltd (Each ADS represents one underlying equity share)
2. Wipro Ltd
3. Dr Reddy’s Laboratories Ltd
4. HDFC Bank Ltd
5. ICICI Bank Ltd

Note 1: Tata Motors Ltd delisted its ADR in Jan2023. 

Note 2: Yatra Online Inc is listed on NYSE. Yatra Online Ltd is listed on BSE and NSE in India. Yatra Online Inc is the ultimate parent company of Yatra Online Ltd. They are distinct listed entities and technically they are different companies. 

Note 3: MakeMyTrip Ltd’s (Indian company) equity shares are listed on Nasdaq – but its shares are not listed in any stock exchange in India. 

Infosys ADS: On March 11, 1999, Infosys listed on NASDAQ, becoming the first Indian company to do so.  During fiscal 2013, Infosys delisted its ADSs from NASDAQ, and listed them in the New York Stock Exchange (NYSE), Euronext London and Euronext Paris. 

 

During fiscal 2019, the Company voluntarily delisted from Euronext London and Paris due to low trading volume. Now, Infosys ADS is traded only on NYSE.


Section B: The Global Depositary Receipts (GDR) of Reliance Industries Ltd (RIL) are listed on Luxembourg Stock Exchange and are traded on the International Order Book (London Stock Exchange) and amongst qualified institutional investors on the over-the-counter (OTC) market in the US.

Reliance Industries Ltd’s GDR Programme: Outstanding RIL GDRs as on March 31, 2024 represent 16,18,17,216 equity shares constituting 2.39% of RIL’s paid-up equity share capital. Each GDR represents two underlying equity shares in the Company. 

 

GDR is not a specific time-bound instrument and can be surrendered at any time and converted into the underlying equity shares in the Company.

3. Valuation of ADR

 
Scenario 1: Hypothetical example: Let us assume an Indian company named K1, listed on NSE / BSE, wants to list its equity shares in the US as ADR. It has 10 million equity shares outstanding.

Out of these, it wants to issue 50,000 ADRs from 100,000 underlying shares (meaning one ADS equals two underlying shares). There is no fresh issue; just a secondary offering. 

How does the company source and value / price these 50,000 ADRs?

Step 1: Identify Shareholders Willing to Offer Shares: Promoters and / or strategic shareholders may offer their shares or other willing shareholders my offer them voluntarily for conversion into ADRs.

Step 2: Thus sourced, the shares are converted to ADRs and kept with a custodian bank in India on behalf a reputable depositary bank in the US.

Step 3: In the process, they will have to follow both the Indian and US regulations.

Step 4: Reputable depositary banks in the US, like, JP Morgan or Citi will solicit investors for the ADRs targeting institutional investors and HNIs. 

Here's a simplified example to show how ADR valuation works when an Indian company lists its shares abroad without raising new capital. In this ADR programme, existing shares are made available for trading in US markets in the form of ADRs.

Summary table for ADR valuation: 

 

Scenario 1: No fresh issue of equity shares (just a secondary listing):

  

Scenario 2: Now, let’s look at how things change when a company raises fresh capital through an ADR offering.

 

Hypothetical example: Let us assume an Indian company named K2, listed on NSE / BSE, wants to list its equity shares in the US as ADR. It has 10 million equity shares outstanding.

It wants to raise new capital. It wants to issue 50,000 ADRs from 100,000 underlying shares (meaning one ADS equals two underlying shares). This is a fresh issue of 100,000 shares for raising new capital. 

How does the company source and value these 50,000 ADRs?

Step 1: In the process, they will have to follow both the Indian and US regulations.

Step 2: Reputable depositary banks in the US, like, JP Morgan or Citi will solicit investors for the ADRs targeting institutional investors and HNIs. 

Since this is a capital-raising offering, the Indian company should account for US market conditions.

US investors will demand a discount to account for:

Market risk
Illiquidity
Emerging market exposure
Small float (only 50,000 ADRs)
Governance and Forex concerns

Let us assume the discount for the above is 10 per cent.

 

In contrast to Scenario 1, here the company issues new shares to raise fresh capital overseas through an ADR offering. This results in share dilution, but also brings in funds -- useful for expansion, debt repayment or strategic investments.
 

Summary table for ADR valuation: 

 

Scenario 2: Fresh issue of 100,000 shares

 

4. Risks and Considerations:

Currency Risk: ADR / GDR values can fluctuate due to changes in the USD INR exchange rate, affecting investor returns.

Market Sentiment: Prices abroad may not always reflect the company’s actual performance in India, especially during global volatility.

Regulatory Compliance: Companies issuing ADRs / GDRs must meet foreign regulations (like US SEC rules), which can be complex and costly.

Liquidity Differences: ADRs / GDRs may trade with lower volumes than their domestic shares, leading to wider spreads and potential price inefficiencies.

Delisting Risk: If trading volumes are too low or compliance lapses, the ADR / GDR can be delisted from the foreign exchange.
 

 

5. Quick Recap

ADRs and GDRs allow Indian companies to tap global investors. But only a few listed Indian companies have opted for this route.

ADR / GDR valuation is based on NSE / BSE share price, share-to-ADR ratio and currency exchange rate.

Fresh issues raise capital and dilute equity, while secondary listings do not.

Market factors (like liquidity, demand and investor sentiment) can cause ADR / GDR prices to differ from their theoretical value.

 

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References:

 

Tweet thread 17Jan2025 on ADR / GDR 

 

SEBI Framework for issue of Depository Receipts 

 

Annual Reports of Infosys Ltd and Reliance Industries Ltd 

 

Notes From Damodaran's Corporate Life Cycle Thesis 18Aug2025

Notes From Damodaran's Corporate Life Cycle Thesis 18Aug2025

 

Follow @vrk100

 

(The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)

 

 

 

The following are notes and charts from a blog written by Professor Aswath Damodaran, dean of valuation. 

 

His blog: Musings on Markets: The Corporate Life Cycle: Managing, Valuation and Investing Implications! 19Aug2024

 

His video 19Aug2024 on the same subject is here.  

 

His book on the same subject: The Corporate Life Cycle: Business, Investment, and Management Implications 

 

His Corporate Lifecycle Online Class is here.  

 

According to Aswath Damodaran, the corporate life cycle (CLC) is a conceptual framework that describes how companies evolve over time, from inception to decline and how their characteristics, risk profiles, funding needs, investment strategies and valuation approaches change at each stage.

Damodaran’s Definition of the Corporate Life Cycle:

“Just like living organisms, companies are born, grow, mature, age and eventually decline. At each stage, they face different challenges, require different management strategies and need to be valued differently.” 

 

Damodaran’s Six Stages of the Corporate Life Cycle:

1. Start-up
2. Young growth
3. High growth
4. Mature growth
5. Mature stable
6. Decline 

 

All companies can be both valued and priced, but the absence of history and high uncertainty about the future that characterizes young companies makes it more likely that pricing will dominate valuation more decisively than it does with more mature firms.  

 

Core Insights from Prof Damodaran:

A company’s value drivers, risk profile and financial strategies should match its life cycle stage.

Many firms (and investors) go wrong by mismatching valuation techniques or strategic choices with the company’s actual life cycle stage.

Narratives about companies must be grounded in numbers and vice versa—especially as a company moves through the life cycle. 

 

Damodaran teaches three classes on:

 

1. Corporate finance

2. Valuation

3. Investing

 

The business life cycle has become an integral part of all the three classes taught by Prof Damodaran. 

 

In corporate finance, all decisions that a business makes can be categorised into:

 

1. Investing (deciding what assets/projects to invest in), 

 

2. Financing (choosing a mix of debt and equity, as well as debt type), and 

 

3. Dividend decisions (determining how much, if any, cash to return to owners and in what form). 

 

 

 

Some charts I liked from the above video:

 

1. The corporate life cycle:

 

 

2. Corporate Life Cycle Determinants:

 

 

3. Measuring Corporate Age:

 

 

4. Valuation Across the Life Cycle:

 

5. Corporate Finance: Across the Life Cycle:

 

 

6. Ageing in Dog Years?

 

 

7. Investing Across the Life Cycle:

 

 

8. Pricing Across the Life Cycle:

 

 

 

9. Managing Across the Life Cycle:

 

10. Ageing Gracefully? The Choices:

 

 Complement the above book, video and or blog by Prof Damodaran with a study on "Trading Stage in the Company Life Cycle" by Michael Mauboussin and Dan Callahan.

 

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Nifty Midcap 150 Quality 50 Index: Has Quality Lost Its Edge? 10Aug2025

Nifty Midcap 150 Quality 50 Index: Has Quality Lost Its Edge?  10Aug2025

 

A Look at Calendar Year Returns 

 

Follow @vrk100

 

(The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)

 

Note: Before you read this blog, don't forget to read "Decoding the Nifty Midcap 150 Quality 50 Index: A Midcap Strategy Based on Fundamentals" I published a few days ago.

 

 

 

Over the past few years, mid-cap stocks have had a terrific run -- especially those from capital-heavy, high-debt sectors riding the wave of government capex, defence spending and economic recovery.

But not all midcaps have participated equally. This brings us to a lesser-followed index: the Nifty Midcap 150 Quality 50. A comprehensive analysis of the index was done a few days ago.

In this post, I take a closer look at the index's calendar year returns and the dynamics of the quality factor in the Indian context. Spoiler: quality hasn't had a great run lately, but there's more nuance beneath the surface.
 

Chart showing calendar year returns: Parent versus Child: 

 

(Parent index here is Nifty Midcap 150, from which child index Nifty Midcap 150 Quality 50 is constructed) 

 

 

Observations from the above chart:

 

1. Performance Balance Over 21 Years:

Over the 2005–2025 period, the Nifty Midcap 150 Quality 50 index outperformed its parent index in 11 out of 21 years.

That's almost a 50-50 split, suggesting no clear long-term dominance of one over the other.

However, the yearly return differential in some years is significant (for example, in 2023: +16% for parent vs child).

2. Recent Underperformance Is Consistent:

From 2021 to 2025, the child index underperformed the parent every single year.

Even in 2022, when the parent was barely positive (+4%), the child fell (-9%).

This consistent underperformance in recent years suggests that the “quality” factor may have fallen out of market favor—possibly due to a shift in investor appetite toward growth or momentum themes during that period.

3. Fund Launch Timing vs Theme Performance:

It is worth noting, back in 2021, DSP Mutual Fund launched a thematic fund based on Nifty Midcap 150 Quality 50 index and ever since in the index has been grossly underperforming its parent index.

 

This is a well-known industry phenomenon: Mutual fund houses often launch thematic / strategic funds when a theme has already played out and is peaking in popularity, making it attractive for marketing—but not always for returns.

This phenomenon is sometimes called "performance-chasing product design"—and it often marks the fag end of a strong run in that theme.

4. Implication for Investors:

It’s fair to say that historical returns and timing of product launches often don’t align well for retail investors.

Evaluating an index or a fund based on long-term factor performance (not recent hype) and macro market context might lead to better decision-making.

 

 

Quality edge or lack thereof

While "smart" beta strategies like Quality can perform well over a full cycle, their performance tends to be cyclical, and often goes through multi-year periods of underperformance, as seen from 2021–2025. These periods test the conviction of investors who buy into the factor story.

Market Shift Toward Capital-Intensive Sectors:

Over the past three to four years, there’s been a notable rotation in the Indian equity markets away from traditional quality names and towards high-debt, capital-intensive sectors. These include:

> PSU banks
> Infrastructure
> Capital goods
> Power and utilities
> Railways and defense
> Real estate and construction-related segments

These sectors often:

Do not rank high on quality screens, because they carry higher debt, lower return ratios and volatile cash flows.

Benefit disproportionately from government capex, PLI (production-linked incentive) schemes and domestic economic momentum.

Tend to outperform during economic upcycles and risk-on environments.

As a result, indices like Nifty Midcap 150 Quality 50, which systematically exclude such companies based on their lower "quality" scores, have missed out on large portions of this rally.

This sectoral rotation helps explain:

> why the child index has underperformed since 2021
 

> why broad-based midcap indices, which include cyclical and leveraged names, have outpaced the quality-focused basket

That factor performance is cyclical—“quality” factor is likely to do well in economic downturns and in periods of downright pessimism, but can lag during risk-on or capex-led booms.

Closing Thoughts

The Nifty Midcap 150 Quality 50 index offers a structured, fundamentals-driven approach to midcap investing. While its recent performance has lagged behind broader indices, especially amid a market tilt toward capital-intensive and high-debt sectors, the quality factor remains relevant for patient, long-term investors in their efforts for resilient portfolio construction. 

 

As with all strategies, its effectiveness tends to be cyclical and influenced by broader market trends.

This analysis is purely observational and does not constitute investment advice.

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References:

 

NSE market watch - DSP Nifty Midcap 150 Quality 50 ETF (for volume and traded value data) 

 

iNAV data (indicative NAV or intra-day NAV) summary of DSP MF ETFs including DSP Nifty Midcap 150 Quality 50 ETF

 

Nifty Midcap 150 Quality 50 Index factsheet - PDF for Jul2025 

 

India Passive funds DSP Nifty Midcap 150 Quality 50 ETF

 

India Passive funds DSP Nifty Midcap 150 Quality 50 Index fund direct plan 

 

Screener.in Nifty Midcap 150 Quality 50 - individual stocks, returns and their valuation ratios are available 

 

DSP MF - DSP Nifty Midcap 150 Quality 50 ETF - NFO product presentation