Beyond the Benchmark: Magic Formula Outperformance in Indian Equity Markets

Most existing studies on the Magic Formula strategy have been conducted in the context of developed markets, while research in the Indian setting has remained limited and largely exploratory. The present study implements and evaluates the Magic Formula in the Indian equity market, focusing on NIFTY 100 constituents from 2007 to 2024. The Magic Formula, introduced by Joel Greenblatt, ranks firms based on earnings yield and return on capital to identify undervalued yet profitable companies. Using annual financial data and adjusted stock prices, we construct portfolios following the standard Magic Formula rules and compare their performance with the NIFTY 50 benchmark. Our findings reveal that even the unmodified version of the Magic Formula outperforms the benchmark substantially, generating approximately 1.7 times higher returns over the study period. These results are particularly notable given that the test universe consists of large, liquid, and relatively low-risk firms. The evidence suggests that extending the strategy to broader indices such as the NIFTY 250 or NIFTY 500 could yield even stronger results, underscoring the potential of systematic value-based approaches in Indian equity markets.