December 30, 2020

How the Nifty will change in the coming decade?

20 of today’s Nifty constituents are highly likely to be booted out over the next decade. We outline how you can identify the exits (relatively easy to do) and the entrants into the Nifty (a little harder to do) over the next decade. If you are good at spotting the 20 entrants into the Nifty you are likely to deliver 40% CAGR over the next decade.

The Nifty typically churns by 40% over a ten-year period implying that 20 of the current Nifty constituents will find themselves ejected from India’s most actively traded benchmark index whilst an equal number will find themselves entering the index. If you or I can second guess some of these exits/entrants we will improve our chances of generating returns significantly higher than the long term returns of investing in the Nifty (the total returns from the Nifty were 10% per annum in the decade running upto 1st December 2019). For example, if we had taken the Nifty as it is stood a decade ago and invested only in those 30 companies which have stayed in the Nifty through the intervening ten-year period, our returns would have been 19% per annum.

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