Role of Fundamental Stability in Quality Portfolios: Evidence from Indian Banks during Pandemic Crisis

<p><strong><span lang="EN-GB">Abstract: </span></strong><span>Banking companies have been majorly excluded from past research in quality investing owing to their unique fundamental dimensions. The study is an attempt at critically exploring fundamental stability as a quality strategy for enhancing bank stock returns. The historical standard deviation of a fundamental score created from the standardised value of empirically identified representative ratios is used as a proxy for fundamental volatility. Four portfolios representing the spectrum of fundamental volatility namely low, average, moderate and high were created. The performance of these portfolios is evaluated based on various Risk-Return metrics. Event study framework using significance testing is deployed to assess the sustainability of stock returns. Further Granger’s causality is applied to assess the impact of COVID on portfolio returns. Results indicate a limited role of fundamental stability in creating sustainable return generating portfolios.</span></p> <p><strong><span lang="EN-GB">Keywords:</span></strong><span lang="EN-GB"> Quality investing, Banks, Fundamental, stability, Volatility, Covid, Event study.</span></p> <p><strong><span lang="EN-GB">JEL Classification Number:</span></strong><span lang="EN-GB"> G21, G30</span></p>