Multi-Factor Performance Evaluation and Persistence Analysis of Socially Responsible and Conventional Equity Portfolios in India

Abstract

This study investigates the comparative financial performance of socially responsible and conventional equity portfolios in the Indian stock market during the period April 2009 to March 2024. The analysis evaluates ESG-oriented portfolios, traditional portfolios, and benchmark market indices using return-based measures, risk-adjusted indicators, Fama decomposition, the Carhart four-factor asset pricing framework, and the Top-minus-Bottom (TMB) methodology for testing performance persistence. The empirical findings indicate that socially responsible investment portfolios did not experience any systematic financial disadvantage relative to conventional alternatives. Among the selected portfolios, the NIFTY100 ESG index generated superior average returns over the overall sample period, while the socially responsible non-blue-chip portfolio demonstrated stronger performance across several alpha and efficiency measures. The four-factor model further reveals that certain ESG-oriented portfolios continued to produce statistically significant abnormal returns even after controlling for market, size, value, and momentum effects. However, persistence analysis suggests that such superior performance was not consistently sustained across different horizons, with evidence of reversal effects emerging in several cases. Overall, the study concludes that ESG-oriented investing in India represents a financially viable alternative to conventional equity investment strategies, although historical outperformance may not necessarily persist over time.