Can betting on last year's losers lead to higher stock market returns?

Mumbai: It pays to bet on the dark horse in the stock market rather than chase recent winners. A study by DSP Mutual Fund shows that investors who bought the previous year's losing index - across large-, mid-, and small-cap benchmarks represented by the Nifty 100, Nifty Midcap 150, and Nifty Smallcap 250 - at the start of every calendar year earned higher returns than those who bought the prior year's winners.

For example, in 2009, large caps gained 4%, midcaps 7%, and smallcaps 8%. At the start of 2010, a contrarian investor would have bought large caps - the previous year's laggards - and earned a 19% return that year. The next year, they would have moved to smallcaps, again picking the underperformer. In contrast, performance chasers would have bought smallcaps in 2010 and midcaps in 2011, ending up with lower overall returns.

Agencies

Between October 2009 and June 2025, a performance chaser earned 12.5%, while a contrarian investor made 15.9%. Investing in the Nifty 500 without any changes would have given 13%, while an equal split between large-, mid-, and small-cap funds would have returned 15.2%.