Nifty's newbies hold no golden ticket to riches

Seeking quick gains from newcomers like Zomato and Jio Financial Services that entered the bluechip Nifty 50 index? While the initial buzz is tempting, and index inclusion adds prestige, remember: it's rarely a guaranteed golden ticket to riches.

- Mayur Bhalerao & Niti Kiran

The Nifty gets a makeover twice a year and this time, Zomato and Jio Financial are in, while BPCL and Britannia are out. A lot of regular investors think this is a chance to make easy money. A Mint analysis reveals that over the past decade, roughly 64% of retail investors chasing similar index additions have fallen for the hype, expecting easy money from reshuffle-driven rallies. However, history also shows that quick gains do not always materialize.

On paper, the mechanics of index reshuffles are straightforward—the NSE selects stocks based on liquidity (with a market impact cost of 0.50% or lower over six months for 90% of observations), eligibility in futures and options, and a minimum one-month listing history. However, this seemingly simple administrative update often triggers strategic moves by institutional entities, sending market ripples that retail investors may misinterpret. Moreover, history shows that substantial profits are typically pocketed ahead of the official announcement, leaving latecomers to chase diminishing gains. It must be noted that these strategies do not guarantee returns.