Stock Market Outlook: Investors wondering why their stock portfolios are not rising despite the recent rally in the benchmark Nifty 50 may be overlooking one crucial factor: the market’s gains are concentrated in a handful of heavyweight stocks, while midcaps, smallcaps and microcaps continue to struggle.
According to Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities, the divergence between the performance of largecap stocks and the broader market explains why many investors are yet to see meaningful gains in their portfolios.
Over the past month, the Nifty Top 10 Equal Weight Index surged 10.64%, significantly outperforming broader market indices. The index comprises the 10 heavyweight stocks in the Nifty 50, with each constituent assigned an equal weight of 10% and the index rebalanced every six months.
In contrast, the Nifty Midcap 150 declined 2.74% during the same period. The Nifty Smallcap 250 also fell 2.74%, while the Nifty Microcap 250 dropped 5.32%.
“The simple answer is you don’t own what is moving up. For the readers who are interested in details. Here it is,” Sheth said.
This divergence indicates that the recent market rally has not been broad-based, with gains concentrated in India’s largest companies rather than extending across market capitalisations.
Why are heavyweight stocks outperforming the broader market?
Sheth identified two major factors behind the divergence, the first being a valuation catch-up among heavyweight stocks.
Largecap stocks were among the worst performers during the preceding market correction, which had been underway since January 2026. The correction pushed several heavyweight companies to relatively attractive valuations, creating room for a rebound as selling pressure eased and valuations normalised.
The performance of the 10 constituents of the Nifty Top 10 Equal Weight Index highlights this recovery. ICICI Bank and Infosys gained 16% each over the past month, followed by Bharti Airtel, which advanced 14.61%. Kotak Mahindra Bank rose 10.08%, while HDFC Bank gained 10%.
Larsen & Toubro advanced 9.02%, Reliance Industries climbed 8.44%, State Bank of India gained 6.24%, ITC rose 5.91%, and Axis Bank advanced 5.58%.
The average one-month return of these 10 stocks stood at 10.19%. However, their average year-to-date performance remained negative at 6.73%, indicating that the recent rally has not fully reversed their earlier losses.
Their average price-to-earnings ratio stood at 21.18, while the average price-to-book ratio was 3.43, according to the data shared by SAMCO Securities.
“The rally has been concentrated in India’s largest stocks, with the broader market struggling to participate. There are two important factors behind this divergence,” Sheth said.
FPI inflows provide another boost to largecap stocks
The second factor supporting heavyweight stocks is the return of foreign portfolio investors (FPIs) to the domestic equity market.
FPIs have invested approximately ₹40,000 crore over the last eight sessions, according to Sheth. Their initial preference when returning to Indian equities is typically large, liquid and well-established companies.
These companies offer the liquidity and scale required by foreign investors to deploy substantial capital, making heavyweight stocks the natural beneficiaries of renewed institutional inflows.
The provisional FII inflow chart on page 3 of the report also highlights the improvement in foreign flows, with inflows turning stronger towards the beginning of November after several sessions of selling in October.
Will the broader market rally catch up?
The recent market recovery should not yet be interpreted as a broad-based turnaround, as midcaps and smallcaps have continued to underperform even as heavyweight stocks rebound.
For investors whose portfolios are concentrated in these broader market segments, the divergence could explain why their returns have not kept pace with the benchmark Nifty.
“The takeaway is clear. This is not yet a broad-based market recovery. It is a heavyweight-led rebound, driven by valuation comfort and the return of institutional flows,” Sheth said.
The next crucial test for the market will be whether the rally eventually broadens to midcaps and smallcaps or remains concentrated in a handful of large companies. Until broader participation returns, investors may continue to find their portfolios lagging the benchmark despite the Nifty’s gains.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
