Deconstructing the Motilal Oswal Value Index (MOVI)

The Motilal Oswal Value Index (MOVI) allows the investor to change equity and fixed income levels as per MOVI values. In this post, I try to understand how the MOVI is calculated.

This is only an academic post about the MOVI and is neither a recommendation to use MOVI or Motilal Oswal Mutual Funds.

MOVI-based indexing is a form of dynamic asset allocation. There are funds like

• Franklin PE-based fund which uses only PE levels.
• IDFC Dynamic Equity Fund that uses a combination of PE and 200-day moving averages.
• DSP BR dynamic asset allocation fund which uses Yield Gap
• Other funds can be found here: Performance of Dynamic Asset Allocation Mutual Funds

How the MOVI is calculated

Information on this is quite sketchy. All we know is that it is a combination of the Nifty PE, PB and Dividend Yield. The 90-day moving average of the MOVI is used for dynamic asset allocation.

MOVI Chart

I have tried to come up with a formula for the MOVI by looking at the above chart and using Nifty PE,PB and DY values.

My guess (not a random one) is, the MOVI has a form which is similar to

MOVI ~ LOG((PE+PB)/DY). Where the Log stands for Logarithm and ~ stands for 'approximately'.

The overall behaviour is very close to the actual MOVI chart, by are higher by about 1.3-1.5 times. This guess formula is good enough to come up with an independent asset allocation strategy. However, that is not quite necessary as we have the actual MOVI itself!

This is a better MOVI chart

The asset allocation matrix as per MOVI levels is given below.

The MOVI-based strategy or any of the other strategies noted above is likely to result in a better risk-adjusted return. It may not always result in a better absolute return, as this comprehensive study shows: Is it possible to time the market?

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