Evaluating a Rule-Based Multi-Factor Sector Rotation Strategy in the Indian Equity Market: A Historical Backtesting Approach

Hattali, Akash S.

doi:https://doi.org/10.55041/ijcope.v2i10.228

Volume 02, Issue 10

Published on: October 2026

EVALUATING A RULE-BASED MULTI-FACTOR SECTOR ROTATION STRATEGY IN THE INDIAN EQUITY MARKET: A HISTORICAL BACKTESTING APPROACH

Akash S. Hattali

INDEPENDENT RESEARCHER

DOI:https://doi.org/10.55041/ijcope.v2i10.228

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Abstract

This study evaluates whether a rule-based, multi-factor sector-rotation strategy, adapted from a practitioner-oriented top-down equity-research framework, improves risk-adjusted performance relative to a broad Indian equity benchmark. Using the Nifty Bank, Nifty IT and Nifty Auto indices alongside the Nifty 100, the strategy ranks sectors quarterly on earnings growth, valuation and relative momentum and holds the two highest-ranked sectors. The factor rules were specified using a development period (January 2011–March 2018) and evaluated over a test period (April 2018–September 2026). In the test period, the strategy generated an annualised return of 16.7% and a Sharpe ratio of 0.56, compared with 10.1% and 0.27 for the Nifty 100 price-return index, after assumed trading costs. However, bootstrap tests did not establish statistically significant Sharpe-ratio differences against the benchmark (p = 0.07) or an equal-weight portfolio of the same sectors (p = 0.08); none of the primary hypotheses remained significant after Holm adjustment. The strategy also could not be distinguished from a momentum-only rule. Excess performance was concentrated around 2020–2021, was absent in the development period and was sensitive to factor weights. Given the three-sector universe and data limitations, these findings are exploratory and do not establish a persistent sector-rotation premium.

Keywords: sector rotation; multi-factor investing; momentum; valuation; backtesting; Indian equity market; Sharpe ratio

JEL classification: G11, G12, G14

How to Cite this Paper

Hattali, A. S. (2026). Evaluating a Rule-Based Multi-Factor Sector Rotation Strategy in the Indian Equity Market: A Historical Backtesting Approach. International Journal of Creative and Open Research in Engineering and Management, <i>02</i>(10), 1-9. https://doi.org/10.55041/ijcope.v2i10.228

Hattali, Akash. "Evaluating a Rule-Based Multi-Factor Sector Rotation Strategy in the Indian Equity Market: A Historical Backtesting Approach." International Journal of Creative and Open Research in Engineering and Management, vol. 02, no. 10, 2026, pp. 1-9. doi:https://doi.org/10.55041/ijcope.v2i10.228.

Hattali, Akash. "Evaluating a Rule-Based Multi-Factor Sector Rotation Strategy in the Indian Equity Market: A Historical Backtesting Approach." International Journal of Creative and Open Research in Engineering and Management 02, no. 10 (2026): 1-9. https://doi.org/https://doi.org/10.55041/ijcope.v2i10.228.

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