Active > Passive.... in India
Capturing Opportunities Before the Index
The Nifty 50 stands as the benchmark for India’s equity market, representing the country’s largest and most liquid companies. For investors, the index serves as a barometer of market health and a preferred vehicle for both passive and active strategies.
However, beneath its apparent stability lies a dynamic and often underappreciated reality: index composition changes frequently, and companies entering the index rarely sustain their past performance.
Survivorship - A Constantly Evolving Index
Historical analysis highlights the transience of index constituents. A review of the Nifty 50 index over the last 10 years shows that:
- 92% of companies from 2024 are still in the index as of 2025.
- Looking back five years to 2020, only 80% remain.
- A decade ago, in 2015, just 12% of those companies are still represented today.
Nifty 50 Survivorship Trend. Source: NSE, data as of 30/06/2025
The data follows a clear exponential decay pattern. Statistically, the index undergoes a half-life of roughly 5-6 years, meaning that half of the current constituents are replaced within that timeframe.
This means by 2030, almost half of today’s Nifty 50 constituents will be replaced. This rapid turnover reflects the dynamic nature of India’s corporate landscape, where emerging sectors and companies consistently displace former market leaders.
The Entry Effect - Performance Peaks Before Inclusion
Beyond survivorship, the performance of companies before and after entering the Nifty 50 reveals further key insight for investors:
- Companies often exhibit exceptional returns in the five years prior to index inclusion, driven by earnings momentum, market optimism, and increasing institutional attention.
- Once included, returns typically decline, as the market has already priced in much of the growth story.
Nifty 50 Entrants - Pre and Post-Entry Index Performance. Source: NSE, data as of 30/06/2025
Across the 2016 to 2020 cohorts, Nifty 50 entrants consistently delivered exceptional returns in the five years leading up to their inclusion, followed by a marked slowdown in performance once they became part of the index.
Implications for Investors – Stay Active
While passive index investing offers broad market exposure, the real opportunity lies with active investors and managers who can anticipate the next wave of Nifty 50 entrants and exit lagging constituents early.
Alpha is most often captured by identifying companies with sustained earnings growth, strong market‑cap expansion, and clear sectoral tailwinds before they enter the index. Sector rotation is also a critical driver - while financials and IT dominate today’s Nifty 50, emerging leaders frequently arise from consumption, manufacturing, and new‑economy sectors.
By positioning ahead of these transitions, active strategies are far better placed to capture the upside that passive funds typically miss.
Never miss an update
Enjoy this wire? Hit the ‘like’ button to let us know.
Stay up to date with my current content by
following me below and you’ll be notified every time I post a wire
Edward is an Investment Analyst at India Avenue, focusing on portfolio construction, macroeconomic research, quantitative analysis, and hedging strategies.
........
This document (‘Document’) has been produced by India Avenue Investment Management Limited (‘IAIM’) ABN 38 604 095 954, AFSL 478233 and has been prepared for informational and discussion purposes only. This does not constitute an offer to sell or a solicitation of an offer to purchase any security or financial product or service. Any such offer or solicitation shall be made only pursuant to a Product Disclosure Statement, Information Memorandum or other offer document (collectively ‘Offer Document’) relating to an IAIM financial product or service. A copy of the relevant Offer Document relating to an IAIM product or service may be obtained by writing to us on info@indiaavenueinvest.com or by visiting www.indiaavenueinvest.com. This Document does not constitute a part of any Offer Document issued by IAIM. The information contained in this Document may not be reproduced, used or disclosed, in whole or in part, without the prior written consent of IAIM.
Past performance is not necessarily indicative of future results and no person guarantees the performance of any IAIM financial product or service or the amount or timing of any return from it. There can be no assurance that an IAIM financial product or service will achieve any targeted returns, that asset allocations will be met or that an IAIM financial product or service will be able to implement its investment strategy and investment approach or achieve its investment objective.
Statements contained in this Document that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of IAIM. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Additionally, this Document may contain “forward-looking statements”. Actual events or results or the actual performance of an IAIM financial product or service may differ materially from those reflected or contemplated in such forward-looking statements. Any trademarks, logos, and service marks contained herein may be the registered and unregistered trademarks of their respective owners. Nothing contained herein should be construed as granting by implication, or otherwise, any license or right to use any trademark displayed without the written permission of the owner.
Certain economic, market or company information contained herein has been obtained from published sources prepared by third parties. While such sources are believed to be reliable, neither IAIM or any of its respective officers or employees assumes any responsibility for the accuracy or completeness of such information. None of IAIM or any of its respective officers or employees has made any representation or warranty, express or implied, with respect to the correctness, accuracy, reasonableness or completeness of any of the information contained in this and they expressly disclaim any responsibility or liability therefore. No person, including IAIM has any responsibility to update any of the information provided in this Document.
Neither this Document nor the provision of any Offer Document issued by IAIM is, and must not be regarded as, advice or a recommendation or opinion in relation to an IAIM financial product or service, or that an investment in an IAIM financial product or service is suitable for you or any other person. Neither this Document nor any Offer Document issued by IAIM takes into account your investment objectives, financial situation and particular needs. In addition to carefully reading the relevant Offer Document issued by IAIM you should, before deciding whether to invest in an IAIM financial product or service, consider the appropriateness of investing or continuing to invest, having regard to your own objectives, financial situation or needs. IAIM strongly recommends that you obtain independent financial, legal and taxation advice before deciding whether to invest in an IAIM financial product or service.
%202.jpg)
Never miss an update
Get the latest insights from me in your inbox when they’re published.
5 topics
1 stock mentioned
%202.jpg)
Edward is an Investment Analyst at India Avenue, focusing on portfolio construction, macroeconomic research, quantitative analysis, and hedging strategies.
Expertise
Edward is an Investment Analyst at India Avenue, focusing on portfolio construction, macroeconomic research, quantitative analysis, and hedging strategies.
Expertise
Comments
Comments
Sign In or Join Free to comment