That’s because the stocks they discard deliver far greater returns compared to the stocks they add to the index. A portfolio made up of all Sensex discards since November 2007 generated an annualized return of 13.8%, while in the case of Nifty, the discards together generated returns of 11.5% annually. In contrast, a portfolio of stocks added to the Sensex in the past 10 years returned a much lower 6.2%. Ditto with the Nifty, where a portfolio of stocks that were included generated annualized returns of 8%. This portfolio of discarded stocks performs better than the corresponding portfolio of newly-added stocks, constructed in a similar manner.

Source: Mint November 30, 2017 02:37 UTC