TIPPING POINT } Does index rejig matter much? that Lupin and Cipla would be removed from the Sensex. Often retail in- vestors panic or get confused about the stocks that are ex- cluded from the benchmark indices. Do they have to base their investment decisions solely on the inclusion or ex- clusion of individual stocks from the indices? Broad equity indices act as a barometer of market di- rection and indicate the» magnitude of changes in the overall market values based on a sample of stocks. How- ever, neither all stocks in the indices guarantee wealth creation nor all stocks re- moved lead to wealth de- struction. By nature of the index, successful stocks are regularly added and tempo- rarily failed ones, in relative terms, are excluded. For instance, when the »-global.deflationary pres- sures were peaking , in No- vember 2015 both Vedanta and Hindalco were removed from the Sensex. However, these two stocks saw their market caps rising over 300% and 260% respectively from the date of exclusion to as of date. In the same peri- od, the market cap of Sensex moved up 30%. More recent example is of GAIL. This stock was excluded from the Sensex on May 19, 2017 —- since then its market cap has moved up 16%, while the market cap of all BSE-listed ‘stocks rose only 10%. Risa it was announced Interestingly, at the peak of the bull run in real estate, DLF was included in the Sensex in November 2007, and in June 2012 it was excluded. During this period of its in- clusion to exclusion, DLF lost 80% of its market cap. It is true that many con- stituents of broad indices do create a lot of wealth in the long term. However, it is equally true that mega wealth creation happen out- side broad indices also. This is realistic for the Indian markets as our country has got the highest number of listed stocks in the world. In India, for instance, only after they emerged as quite large There are over 4,000 actively traded stocks outside Sensex/Nifty. In fact, the total market cap outside Sensex stands at around Rs 88 lakh crore, about 60% of the market cap of all BSE-listed stocks cap stocks, Infosys and Wipro were included in the broad indices. The broad indices are also useful for the passive investors to invest in any markets through ETF routes and for hedging the individual portfolios against market volatility, For retail investors, who believe in individual stock picking, it is the individual merit of the stocks on funda- mental basis rather than in- clusion or exclusion would matter for wealth creation. The writer is founder and managing director, Equi- nomics Research & Advisory =a