However, the story is different when it comes to investors’ portfolios.
For instance, the Nifty has risen roughly 6-7% over the past year, while other segments of the market have moved differently. The BSE SmallCap index is down 5% year-on-year, and the MidCap index has gained just 2% during the same period. Understanding this divergence between headline indices and the broader market helps explain why recent market highs aren’t reflected evenly across all portfolios.
A Little Rally
A small group of equities has driven much of the Nifty’s recent gains. Since October, only about 25% of the index’s constituents have contributed roughly 80% of its rise. Notably, six major companies – Reliance Industries, HDFC Bank, Bharti Airtel, SBI, L&T, and Axis Bank – account for around 60% of the index’s overall gain.Even though most Nifty 50 stocks haven’t reached new highs in 2025, gains in a handful of stocks have been sufficient 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 this market shift. HDFC Bank is a prime example. When HDFC Ltd. acquired the bank in 2023, foreign ownership was nearly at the maximum limit allowed by regulators. As a result, MSCI (Morgan Stanley Capital International) reduced the stock’s weight in its global indices. Recently, HDFC Bank regained its full weight after foreign ownership declined slightly.
This adjustment is expected to attract around $2.5 billion in passive investments into Indian equities, with HDFC Bank alone accounting for $1.8 billion. These inflows are driven not by sentiment or valuation, but by index-tracking rules that direct funds to rebalance according to updated weights. The resulting demand has helped lift the share prices of large corporations included in these indices.
Investor Sentiment from Other Countries and Sector Rotation
On the other hand, Foreign Institutional Investors (FIIs) have been withdrawing funds from the market since 2025, selling Indian equities worth ₹2.67 lakh crore, the highest ever. Several factors have driven 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 shifted 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 increased the disparity between index-level gains and the performance of the market as a whole.
Retail Liquidity and Moving Money Around in Your Portfolio
A similar trend is visible among individual investors in the US, but they are approaching it differently. Over the past year, retail investors have clearly reduced exposure to mid- and small-cap stocks. The Nifty MidCap index is currently trading at 25 times its one-year projected earnings, above its 10-year average of 23, while the SmallCap index trades at 23 times, well above its long-term average of 18.
IPO activity has also played a role. Retail investors poured Rs 30,000 crore into IPOs while withdrawing 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 on offer. This activity has siphoned money away from existing holdings, particularly in mid- and small-cap stocks where retail participation is typically higher.
Additionally, rising gold and silver prices have prompted investors to rotate funds into precious metals, forcing some equity market participants to sell holdings in certain segments.
A Market of Differences
These overlapping factors make the market appear strong at the peak but weak at the bottom. Large corporations have benefited from passive inflows, index adjustments, and capital rotation, pushing benchmark indices to new highs. Meanwhile, foreign and retail investors have reduced their investments in broader sectors, affecting the performance of mid- and small-cap companies.
During such periods, divergence between index gains and individual portfolio performance is not unusual. What stands out now, however, is the pronounced gap, driven 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 Cofounder & Executive Director at Prime Wealth Finserv)
