Market Timing with the Motilal Oswal Value Index (MOVI)

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In the 6th part on the series on tactical asset allocation techniques based on market timing, we evaluate the Motilal Oswal Value Index (MOVI) over five-year vs ten-year periods. The MOVI index data is available at the Motilal Oswal website used a combination of  Nifty price to earnings ratio (PE), price to book value (PB) and dividend yield to compute how overheated the equity market is. The equity allocation in the portfolio is then decided based on this.

Since the exact formula of MOVI is not available in the public domain ( MO amc must be paying several lakhs to India Index Services and Products Ltd (IISL) for the index), I had previously tried to calculate it: Deconstructing the Motilal Oswal Value Index (MOVI). Before we look at MOVI market timing backtest, we need to cover some basic ground..

Warning and Disclaimer

The following is to be treated as investment research based on past data unrepresentative of practical implementation and is not investment advice. They do not factor in behavioural/emotional aspects associated with investing. If you do not know how to understand a backtest result, evaluate its disadvantages, then please, please DO NOT play with your money using market timing.  Please watch this video before proceeding further.

What is meant by tactical asset allocation (TAA)?

Asset allocation is the ratio of much equity, fixed income, gold, cash etc. is present in a portfolio. We will only consider equity and fixed income in this study. Tactical asset allocation (TAA) refers to changing these allocations based on certain factors or indicators.

What is market timing?

It is a technique to reduce portfolio risk and/or enhance portfolio returns by changing asset allocation based on our reading of where the market will head in the near future. This can be the stock market, bond market, gold market etc.

Is tactical asset allocation necessary?

Yes, as the risk associated with a portfolio must be systematically reduced or contained to ensure we have enough money for our future needs.

Is market timing necessary?

No. Tactical asset allocation is necessary and one need not resort to market timing to do this. TAA is possible based on a target corpus associated with a financial goal. See:

Part 1 How to reduce risk in an investment portfolio

Part 2 Do we need to time the market?

Part 3 Why we need to gradually pull out of equity investments well before we need the money!

Can we time the market?

Yes. However, realistic and reproducible market timing methods have often primarily reduced risk with or without return enhancement. See results here: Want to time the market with Nifty PE? Learn from Franklin Dynamic PE Fund and here: Is it possible to time the market?

To summarise, Can we time the market? Yes, we can. Do we need to time the market, No, there is no need to. If you do not understand this difference, please do not proceed further.

Previous parts on the tactical asset allocation series1:

1: Do we need to time the market?

2: Market Timing with Index PE Ratio: Tactical Asset Allocation Backtest Part 1

3: Market Timing With Ten Month Moving Average: Tactical Asset Allocation Backtest Part 2

4:  Tactical Asset Allocation Backtest Part 3: Short-Term Vs Long-Term

5: Buying on market dips: How effective is it?

MOVI Asset Allocation Rules

First, let us consider the rules mentioned at the MO website. Take the 90-day moving average of the MOVI index (movi-90ma).


These are historic buy and sell zones of the MOVI. The actual equity asset allocation is:


the MOST Dynamic equity fund uses an investment strategy similar to this.

Rules of Market Timing with MOVI (two-steps)

We will start off with a simple two-step rule. If movi-90ma < then sell all debt and invest in equity and systematically invest only in equity.

If movi-90ma is between 90 and 110, investment systematically in equity and debt. If movi-90ma> 110, then sell all equity and invest in debt and also invest systematically only in debt. We use Franklin India Blue Chip Fund for the Equity component and Franklin India Dynamic Accrual Fund (Templeton India Income Fund) for the debt component

market timing with movi index

Systematic investing A total amount of Rs. 1000 will be invested into the portfolio in a specified asset allocation (see below). The systematic portfolio will be rebalanced once a year. To account for exit loads and tax associated with this, the final portfolio amount will be reduced by 4%.

Tactical investing with the rules detailed above.  The final tactical portfolio is reduced by 20% (this is 5 times the amount assumed for the systematic portfolio as the average no of trades in 10Y is about 5). This 20% accounts for exit loads of equity and fixed income and tax associated with equity. Remember equity was taxed like a debt fund before 2004 and will be again taxed from the current FY.

1 MOVI Timing: 10-years and 50% Equity and 50% debt (115 data points)

Top Left: The XIRR or returns are compared. Higher the better!

Top Right: The maximum fall of the portfolio from a peak is compared. The vertical axis is negative. So lower the value, the more the fall, the more the risk.

Bottom left: Standard deviation or how much the monthly returns fluctuate is compared. Higher the value, the higher the fluctuation, the higher the risk.

Bottom right: The no of months, the portfolio was continuously lower than a previous peak (underwater) is compared. Higher the no of months, higher the risk.

That is pretty good performance (return-wise), but MOVI timing, when done this way, does not exactly lower portfolio risk on a day to day basis but does decrease no of portfolio -ve returns.

In what follows, you will see graph after graph with not much commentary. This is deliberate. I prefer to let the pictures do the talking. Those who are interested will anyway look at them carefully.

2 MOVI-Timing: 10-years and 70% Equity and 30% debt

moving timing with 70% equity
Again that is pretty decent

3 MOVI-Timing: 5-years and 50% Equity and 50% debt (175 data points)


4 MOVI-Timing: 5-years and 70% Equity and 30% debt

I would that is quite reasonable. Practically every TAA rule that I have backtested seems to have not got better returns in the recent past. Is this because the market has only moved up for the most part recently? Could be.

MOVI Timing Five Step Rules

1: If movi-90ma < 70: sell debt, invest in equity, systematically invest only in equity

2: If movi-90ma is between 70 and 90, rebalance such that equity is 80%. Also invest systematically in the same proportion.

3: If movi-90ma is between 90 and 110, rebalance such that equity is 55%. Also invest same systematically in the same proportion.

4: If movi-90ma is between 110 and 130, rebalance such that equity is 25%. Also invest systematically in the same proportion.

5: If move-90ma is greater than 130 then sell equity and invest in debt. Invest systematically only in debt.

When most investors find it daunting to follow a two-step process a 5-step process will be feared as too much work by many. Note that the actual movi rules contain more steps. Such multi-step TAA is well suited for pass-through instruments like mutual fund which do not have to pay tax and loads on each churn.

1 MOVI-Timing (5 steps): 10-years and 50% Equity and 50% debt

2 MOVI-Timing (5 steps): 10-years and 70% Equity and 30% debt 

3 MOVI-Timing (5 steps): 5-years and 50% Equity and 50% debt

4 MOVI-Timing (5 steps): 5-years and 70% Equity and 30% debt


I think MOVI has fared quite decently in the past. Depending on how you implement rules it can either be high-risk with potential high-reward or low-risk with reasonable reward option (see the performance of MOST Dynamic Equity fund). This is, of course, true for any TAA rule. One big advantage with MOVI TAA is that the max no of months with no equity investment is quite low ~ 7-8 months. This is significantly lower than PE based timing. Please note that the systematic investing has been done with annual rebalancing. So do not assume you can leave it to chance and everything will turn out right.

What is my objective here?

Very few people are interested in posts such these. The reason I purse them is for my own satisfaction and search for a practical market timing method that will consistently lower risk and perhaps enhance reward. If you look at the number of months, the portfolio fell (negative returns) then clearly most TAA methods do well. The extra returns have also been decent. Of course on cannot guranteed that this will continue in future (in fact it has no even in the recent past). The hope is that if we lower risk, we can be calmer investors. The trouble is, most investors are lazy, worried about tax and loads and want lower risk and highe returns without effort. That I can say with certainity will not happen. Even if it does, it will be sheer pot luck.

My search continues. Many more methods to be tested.

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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
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  1. Hi Dear Pattu,

    Thanks for your continuous posts on personal finance. I am a regular reader of this blog and also started following your re-assemble series in my money management.
    Educative post this is, I must say.
    Pardon me for digressing. On a different note, I got interested in your books and clicked on them to buy. I see that this post said that there were some discounts on each of the books (both hardcover and Kindle versions).
    However, on website, these discounts didn’t get reflected. Could you please clarify?
    FYI, I am interested in buying the Kindle versions.
    Thanks for all your posts again. Good day.

  2. Are fee-based financial advisor equipped to offer TAA advice too? Is this an industry norm or is this something that one has to learn and execute on his own?

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