Nifty is near all-time highs; But why is your portfolio still underperforming?

Synopsis: Despite the Nifty reaching near all-time highs, market gains remain narrowly concentrated in a handful of large-cap stocks. Data shows that out of 716 stocks listed for over a year, only 252 have delivered positive returns, while the median return is –10.54 percent. This disconnect explains why many retail-heavy portfolios continue to underperform even as benchmark indices scale new peaks.

The Nifty’s proximity to all-time highs creates a powerful impression of a strong and rewarding market. Daily headlines celebrating record levels suggest that investors should be seeing healthy gains across their portfolios.

Yet, for many retail investors, reality feels very different. Portfolio returns often lag far behind index performance, raising a simple but frustrating question: if the market is doing so well, why does my portfolio still feel stuck?

Index Returns

Over the past one year, the performance of Indian stock market indices has been uneven. Large-cap stocks have done relatively better, with the Nifty 50 rising 5.12 percent and the Sensex gaining 3.91 percent. Mid-cap stocks have seen only marginal growth, as the Nifty Midcap 150 delivered a return of 1.31 percent.

In contrast, small-cap stocks have faced significant pressure, with the Nifty Smallcap 250 falling 10.17 percent and Nifty Microcap 250 falling 14.7 percent, showing that broader markets have clearly lagged behind the benchmark indices.

What Index Highs Actually Represent

Benchmark indices such as the Nifty and Sensex are often viewed as indicators of overall market health. In practice, however, these indices are heavily weighted toward a small set of large-cap companies.

Because of this structure, strong price movements in a few heavyweight stocks can lift the entire index, even when a majority of listed companies are struggling. As a result, index milestones do not always reflect the experience of the average investor.

Large-Cap Stocks Driving the Rally

The current market rally lacks breadth. Gains have been concentrated in a limited number of large-cap stocks that carry significant weight in the indices. These stocks have driven most of the upward movement, while large parts of the market have either stagnated or declined. This concentration allows benchmark indices to reach new highs, even as many stocks fail to participate in the rally.

Market Data Reveals the True Picture

Looking beyond index levels, broader market data highlights the imbalance. Among 716 stocks listed for more than a year, only 252 have delivered positive returns, while 464 have generated losses.

The median return stands at –10.54 percent, and the average return is –5.24 percent. Additionally, 268 stocks have fallen by more than 20 percent, compared with just 117 stocks that have risen over 20 percent. These figures clearly indicate that market gains are uneven and narrowly distributed.

Why Retail Portfolios Are Hit Harder

Retail investors typically allocate a larger share of their portfolios to mid-cap and small-cap stocks, attracted by their perceived growth potential. However, these segments have largely missed the current rally.

The Nifty Smallcap 250 index remains about 10 percent below its previous peak, while the Nifty Microcap 250 index is down roughly 15 percent. Since many retail portfolios are concentrated in these categories, overall returns remain subdued despite strong index performance.

Factors Behind Small- and Mid-Cap Weakness

Experts attribute the underperformance to multiple reasons, including subdued earnings growth, stretched valuations, and reduced participation from foreign institutional investors (FIIs).

Additionally, a strong IPO pipeline has diverted liquidity away from the secondary market, prompting investors to offload small-cap holdings. According to V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, retail-heavy portfolios are particularly vulnerable to these market dynamics.

Foreign Institutional Investors have also played a significant role in shaping this divergence. As volatility increased and valuations in the small- and mid-cap space appeared stretched, FIIs reduced their exposure to these segments. Instead, they shifted capital towards large-cap stocks, which are perceived as safer and more stable. These companies also stood to benefit from policy measures such as GST rationalisation, income tax reductions, and the RBI’s dovish monetary stance. This FII preference further strengthened large-cap performance while leaving smaller stocks struggling.

Another factor impacting small- and mid-cap stocks has been elevated IPO activity. With a steady pipeline of new public issues, investors have increasingly redirected funds from existing small-cap holdings to the primary market. This capital rotation has added selling pressure on listed small-cap stocks, exacerbating their underperformance. For retail investors, this has meant weaker price action in the very stocks that dominate their portfolios.

A large number of retail investors entered the stock market after the Covid crash in March 2020. Many of these new investors gravitated toward small-cap stocks, driven by strong returns seen during the post-pandemic recovery phase. However, as market conditions normalised and valuations became stretched, these stocks lost momentum. According to market experts, this “obsession with small caps” has left many retail-heavy portfolios exposed to prolonged underperformance.

The gap between index performance and personal portfolio returns has taken an emotional toll on retail investors. Watching markets celebrate new highs while portfolios remain negative can lead to frustration, self-doubt, and impulsive decision-making. Experts caution that reacting emotionally by exiting positions randomly or chasing short-term trends may worsen outcomes rather than improve them.

For retail portfolios to see meaningful improvement, the rally must broaden across sectors and market capitalisation. Until mid- and small-cap stocks begin to participate consistently, index highs alone will not translate into widespread wealth creation. Market experts suggest that recovery in retail-heavy portfolios may require a gradual shift toward large-cap stocks and carefully selected mid-cap companies with strong fundamentals and sustainable earnings growth.

Experts advise against indiscriminate selling of small-cap stocks and emphasise the importance of discipline and long-term focus. However, they also caution that small-cap underperformance may persist in the short to medium term due to the narrow nature of the current rally. A combination of patience, diversification, and selective rebalancing is essential while the broader market continues its healing process.

Conclusion

Record highs in the Nifty and Sensex do not automatically translate into strong portfolio returns for most investors. The current rally reflects concentration rather than broad participation, leaving many retail portfolios under pressure.

Recognising this divergence helps investors set realistic expectations and make more informed decisions in a market where index strength and individual stock performance often move in very different directions.

Written by Akshay Sanghavi

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