Market Timing with the Motilal Oswal Value Index (MOVI)

Published: August 28, 2018 at 11:17 am

Last Updated on

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.

Do share if you found this useful
Share your thoughts on this topic at the  Reddit freefincal_user_forum

Reach your financial goals like a pro! Join our 1600+ Facebook Group on Portfolio Management! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community. The 1st lecture is free!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman 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. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps