Deepti Khadikar - How Quality Delivers Over Time

Equity markets are full of surprises. One year, a sector surges. The next, it slips. For most investors, it’s difficult, if not impossible, to predict what will work when. That’s why some prefer not to chase market trends but to focus on something more consistent: quality.

The quality investing looks for businesses that deliver steady profits, manage debt well, and reinvest wisely for the future. It’s not about being flashy. It’s about being dependable. And over time, that dependability often adds up to something powerful called ‘compounding’.

Let’s look at how quality has performed over the long run. If someone had invested ₹1 lakh in the Nifty 200 Quality 30 Total Return Index in April 2005, that investment would have grown to ₹26.8 lakh by March 2025. That’s a 20-year CAGR of 17.9%. In comparison, the broader Nifty 200 TRI delivered ₹14.5 lakh over the same period, meaning a CAGR of 14.3%.

This gap in returns may seem small in percentage terms. But over 20 years, it results in almost double the wealth. That’s the strength of consistent compounding, and it’s one of the main reasons why quality investing attracts patient investors.

Apart from strong long-term returns, the quality investing has also shown a better risk-adjusted profile. On a five-year daily rolling basis, it had the highest risk-adjusted return (RAR) of 3.3, compared to 2.5 for the broader market and 2.9 for momentum. This means investors got more return per unit of risk taken.

Just as important, the quality investing had zero instances of negative returns across any five-year daily rolling period over the last 15 years. In contrast, strategies like value and alpha did have periods of losses, even over five years.

Quality investing’s combination of returns with low volatility can be especially helpful for investors planning long-term goals. When volatility is lower, people are less likely to panic and exit at the wrong time.

One of the lesser-discussed benefits of quality investing is that it encourages investor discipline. Because quality companies tend to grow steadily, portfolios built around them often need fewer changes. This reduces portfolio churn and lowers the risk of emotional decision-making.

Many investors don’t realise that the biggest threat to long-term wealth isn’t a bad stock pick. In fact, it’s reacting badly to volatility. By offering a smoother investing experience, quality helps prevent those mistakes.

Valuations matter—buying even great companies at inflated prices can hurt returns. Quality investing works best with valuation discipline.

Mind you, quality may not always be the best-performing theme in any given year. It might underperform in bull markets where high-beta stocks lead the rally. But over time, it has shown that consistency can beat excitement.

For investors who want to build wealth over decades, not just quarters, quality investing offers a dependable path. It doesn’t shout for attention, and that’s precisely the strength of quality investing.

Many investors lack the time or resources to deeply assess individual businesses. That’s where mutual funds step in, offering a convenient and professionally managed option. Quality-focused mutual funds apply rigorous research frameworks to identify companies with strong balance sheets, durable business models, and long-term competitive advantages—while staying mindful of valuations.

Thus, trends will come and go. But quality, as an investing approach, has quietly delivered both performance and peace of mind. For investors willing to give time to their money, quality might just be the quiet partner they’ve been looking for.

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