Sensex, Nifty up 20% since April but your stock portfolio is bleeding! This is the reason

Indian benchmark indices - BSE Sensex and Nifty50- saw a strong profit booking in the last two trading session, after hitting 52-week highs on Thursday October 23. Sensex & Nifty scripted nearly a 20 per cent rebound from their respective 52-week lows hit in April 2025, around 6 weeks earlier.

However, despite this sharp rally in the headline indices, broader market sentiments remain subdued. A large number of stocks from the mid and smallcap segment continue to remain under pressure. Interestingly, the broader market indices also hint towards the same pain.

BSE midcap and BSE smallcap indices have remained flat in the last one year, while they have delivered a negative return on a year-to-date basis. Even in the last six months, their rise has been around 7-8 per cent only, widely underperforming the benchmark indices. Usually, broader markets outperform the benchmark indices during the rally.

Market participants tracking Dalal Street believe that consistent FIIs outflows and delayed trade deals with the US and India, coupled with the rich valuations of the Indian equities is denting the sentiments. Stock market is the slave of earnings and current earnings of India Inc is not justifying the spooky valuations.

This divergence stems from the fact that the Nifty rally lacks conviction. Market participants remain tentative, still unsure whether the index can decisively break past its all-time high levels touched back in September 2024. For that confidence to build, several pieces need to fall into place, said N ArunaGiri, Founder & CEO at TrustLine Holdings.

While global investor positioning remains favourable towards India because of their current underweight status, the market may consolidate for more time until earnings catch up with the current elevated valuations. Even though there are potential tailwinds from the US–India trade deal, the combination of rich valuations and slowing growth makes a sustained breakout difficult, he said.

"Against this backdrop, we believe, it is unlikely that we will see any fireworks either at the headline Nifty level or in the Smallcap Index anytime soon. Most of the action is expected to remain bottom-up and stock-specific, while the headline indices may continue to move sideways as the market digests the high valuations through time correction," ArunaGiri added.

Additing to this, Pranay Aggarwal, Director and CEO at Stoxkart said that the divergence stems from narrow market breadth, stretched valuations, and muted institutional flows into smaller stocks. He believes that the trend may continue in the near-term and stock-picking shall be the key during the market volatility.

"Large-cap heavyweights in financials, consumer durables are driving index gains, while risk aversion keeps investors away from volatile smallcaps due to high valuations and global risks but a rebound is likely from early 2026. In the near term, recovery may remain selective and gradual, driven by attractive post-correction valuations, and sector tailwinds in autos, healthcare, and infra."