For example, the Nifty has risen about 6-7% in the past year, while other segments of the market have developed differently. The BSE SmallCap index is down 5% year-on-year, and the MidCap index is up just 2% over the same period. Understanding this difference between the major indices and the broader market helps explain why recent market highs are not reflected evenly across portfolios.
A small rally
A small group of stocks have driven a large part of the Nifty’s recent gains. Since October, only about 25% of the index’s components have contributed roughly 80% of the increase. Notably, six major companies – Reliance Industries, HDFC Bank, Bharti Airtel, SBI, L&T and Axis Bank – account for around 60% of the index’s total gains. While most Nifty 50 stocks have not hit new highs in 2025, gains from a handful of stocks have been enough to push the index to record levels. This concentration means that index-level performance does not reflect the broader market or the experience of the average investor.
Changes to indexes and passive flows
Changes in the structure of global indices have contributed to some of these market shifts. HDFC Bank is a good example. When HDFC Ltd. took over the bank in 2023, foreign ownership was close to the maximum limit allowed by regulators. As a result, MSCI (Morgan Stanley Capital International) reduced the weighting of the stock in its global indices. Recently, HDFC Bank regained its full weight after its foreign holdings declined slightly.
This adjustment is expected to attract around $2.5 billion in passive investments in Indian equities, with HDFC Bank alone accounting for $1.8 billion. These inflows are not driven by sentiment or valuation, but by index tracking rules that ensure funds are rebalanced based on updated weights. The resulting demand has helped push up the stock prices of major companies included in these indices.
Investor sentiment from other countries and sector rotation
On the other hand, Foreign Institutional Investors (FIIs) have withdrawn money from the market since 2025, selling Indian equities worth ₹2.67 lakh crore, the highest ever. Several factors have caused this exodus, including a strong US dollar, delays in the India-US trade deal and weak performance in sectors such as IT, private banks and NBFCs.
These trends have changed the allocation of capital. Instead of spreading investments across the broader market, funds have flowed into large-cap stocks that are liquid and relatively stable. This concentration has widened the disparity between index-level gains and the performance of the market as a whole.
Liquidity in retail and moving money in your portfolio
A similar trend is evident among individual investors in the US, but they approach it differently. Over the past year, retail investors have significantly reduced their exposure to mid- and small-cap stocks. The Nifty MidCap index is currently trading at 25 times forward one-year earnings, above its 10-year average of 23, while the SmallCap index is trading at 23 times, well above its long-term average of 18.
IPO activity has also played a role. Retail investors invested Rs 30,000 crore in IPOs, while raising Rs 4,700 crore from the secondary market in FY26 – the largest exit since FY19. In November 2025 alone, IPOs worth over ₹76,000 crore were offered. This activity has diverted money from existing investments, especially in mid- and small-cap stocks, where retail participation tends to be higher.
In addition, rising gold and silver prices have prompted investors to shift their funds into precious metals, forcing some stock market participants to sell their positions in certain segments.
A market of differences
These overlapping factors make the market look strong at the peak, but weak at the bottom. Large companies have benefited from passive inflows, index adjustments and capital rotation, pushing benchmark indices to new highs. Meanwhile, foreign and private investors have reduced their investments in broader sectors, impacting the performance of medium and small companies.
During such periods, the difference between index gains and individual portfolio performance is not unusual. However, what is now striking is the pronounced gap, caused by structural factors, changes in liquidity and the concentration of capital in a few companies. These dynamics continually reshape the market, meaning headline highs may not fully reflect the experience of most investors.
(Chakrivardhan Kuppala is co-founder and executive director of Prime Wealth Finserv)
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