Why many retail investors are not making money even as Nifty, Sensex hit new highs

India’s benchmark indices may be scaling fresh record highs, but a large share of retail investors is not seeing corresponding gains in their portfolios. Market experts attribute this disconnect to the narrowness of the rally, heavy retail exposure to small-cap stocks, and significant underperformance across the broader market.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said the new records set by the Nifty and Sensex this week mask the fact that only a limited set of large-cap stocks is driving the up-move. “Despite the market at new highs, the majority of retail investors, particularly newbies who rushed into the market after the Covid crash in March 2020, are holding portfolios which show losses,” he said.

According to him, the core problem is the retail investor’s “obsession with smallcaps” and the belief that these stocks will outperform regardless of valuation. The Nifty Smallcap index remains about 9 percent below its previous peak, reflecting poor earnings growth and stretched valuations in the segment. Vijayakumar expects small-caps to continue underperforming in the short to medium term, which means retail-heavy portfolios may not recover meaningfully unless investors rotate towards large-caps and select mid-caps with strong growth prospects.

• Also read | Jefferies skeptical about rebound in IT stocks, says growth outlook uncertain; check top picks

Apurva Sheth, Head of Market Perspectives and Research at SAMCO Securities, echoed the view that headline indices are painting an incomplete picture. “Benchmarks often create an illusion of prosperity. When the index hits new highs, it feels like everyone is making money. But the real story is visible only when you break down what lies beneath the headline index,” he said.

Of the top 750 stocks by market capitalisation, 716 have been listed for over a year. Within this universe, only 252 stocks are showing gains, while 464 are in the red. The median return is -10.54 percent and the average return is -5.24 percent. Sheth added that 268 stocks have fallen more than 20 percent, whereas only 117 have risen more than 20 percent.

“This gap exists because the Nifty is driven by a handful of heavyweight stocks which have held up the index,” he said. In contrast, the Nifty Microcap 250 is down about 10 percent and the Nifty Smallcap 250 is down about 9 percent since the Nifty’s previous all-time high. These pockets -- where retail investors typically have outsized exposure -- have not participated in the rally, dragging portfolios lower.