Rs 1 Lakh to Rs 26.8 Lakh: Can the Quality Index outrun the Nifty 200?

Over the past two decades, investing in “quality” has paid off.  Since April 2005, Rs 1 lakh invested in the Nifty 200 Quality Index would have grown to Rs 26.8 lakh, nearly doubling the ₹14.5 lakh return from the broader Nifty 200 TRI over the same period. This outperformance raises a key question for investors: what exactly is a quality stock, and should it be a core part of your investment strategy? 

Source: NSE Indices Ltd. Data as on March 31,2025. Past performance may or may not be sustained in the future. For indices TRI value is used

 

A Quality Index is a stock market index that tracks companies with strong fundamental characteristics—typically those considered financially healthy, stable, and efficiently managed. 

 

Performance of Quality Strategy

 

• Historical data shows that the quality style has demonstrated good risk-adjusted returns and greater return predictability compared to value, momentum, and alpha strategies:
• On a 5-year daily rolling return basis, the quality strategy delivered an average return of 17.4% with the risk-adjusted return ratio (RAR) of 3.3
• Since April 2005, an investment of Rs 1 lakh in the quality index would have grown to Rs 26.8 lakh, compared to ₹14.5 lakh for the broader Nifty 200 TRI.

 

Source: NSE Indices Ltd. Data as on March 31, 2025. The Investment Period is considered from April 2005 to April 2020. Returns are considered from April 2010 to March 2025. Past performance may or may not be sustained in the future. RAR: Risk Adjuste

ICICI Prudential Mutual Fund on Monday launched the ICICI Prudential Quality Fund, an open-ended equity scheme following the Quality Factor as theme. This New Fund Offer (NFO) opens on May 6, 2025 and closes on May 20, 2025.  

The scheme aims to invest in companies that exhibit stronger fundamentals such as high return on equity (ROE), robust cash flows, low financial leverage, and a history of sound capital allocation. These factors, combined with a reasonable valuation approach, can form the backbone of the scheme’s stock selection strategy.

 

“In today’s environment of economic uncertainty and moderating growth, business with sound financials and sustainable profitability stand out. ICICI Prudential Quality Fund aims to tap into this potential by selecting high quality* companies available at reasonable valuations, thereby aiming to build a resilient portfolio designed to perform across market cycles. With attractive valuations in the quality segment, we believe this is an opportune time for investors to adopt a quality-focused strategy," said Sankaran Naren, ED & CIO of ICICI Prudential AMC.

 

Why invest in quality now?

 

Amid growing global economic uncertainties, including geopolitical tensions, elevated interest burdens, and a moderating domestic earnings cycle, the AMC believes that quality stocks can weather the storm. These companies generally outperform in periods of volatility due to their sound balance sheets and growth records.

 

While the quality theme had underperformed broader markets and other styles like momentum, value and alpha in recent years, this has resulted in more attractive entry valuations today. 

Data as on March 31,2025. Returns are on absolute basis Past performance may or may not be sustained in the future. FY: Financial Year. For Quality: Nifty 200 Quality 30 TRI, for Value: Nifty 200 Value 30 TRI, for Momentum: Nifty 200 Momentum 30 TRI,

 

Flexible & Research-Driven Approach

 

The ICICI Prudential Quality Fund will follow a flexible investment strategy, drawing from both top-down (macro and sector-level) and bottom-up (company-specific) research. It will help maintain the flexibility to invest across sectors and market caps. 

The fund's portfolio construction process involves narrowing down a universe of approx 625 companies to around 40–60 names, based on stringent quality and valuation filters. 

Scheme Details:

• Fund Managers: Ihab Dalwai & Masoomi Jhurmarvala
• Benchmark: Nifty 200 Quality 30 TRI
• Exit Load: 1% if redeemed within 12 months of allotment, nil thereafter
• Plans: Regular & Direct; Options: Growth & IDCW
• SIP / SWP / STP: Available

Highlights:

 

The scheme seeks to tap into the long-term growth opportunities by investing in businesses with higher ROE and ROIC, lower financial leverage, sound net cash balances, and efficient capital allocation - all while ensuring investments are made at reasonable valuations

 

The scheme will adopt a flexible investment approach across market capitalizations and sectors, following a blend of top-down and bottom-up strategies

 

The scheme offers investors an opportunity to power their portfolios with quality picks at a time when valuations are reasonable, aiming for long-term wealth creation