Why Nifty is at an all time high but the retail portfolios underperforming?

Indian Markets have been on a winning streak from the past few sessions and are trading near their all-time highs at the current juncture. The recent rise in the indices was backed by improving global sentiments and fading fears of war escalation between Russia and Ukraine. On the other hand, stabilizing global commodity prices followed by a steep decline in crude oil prices have also added to the bullish sentiments on the street in a recent couple of weeks.

If we judge the equity markets by the index performance then it is quite obvious that the Indian markets have been a big-time outperformer in comparison with the global peers which are still quite away from their lifetime highs. But the real picture lies in the below table about the performance of the domestic indices:

In the above table, it is clearly visible that the benchmark indices have given a spectacular rally but the broader markets which consist of small and mid-cap stocks are still laggards. In other terms defines that the markets seem to be bullish on paper but the portfolios of the retail investors who majorly have mid and small-cap stocks and funds in their holdings are still underperforming by huge margins.

Aforesaid is the major reason for the market participant’s lower enthusiasm in the current market scenario which is also clearly reflected in the daily advance-decline ratio as well where the indices will be in green but the market breadth will be on the declining side.

The above analysis doesn’t mean that the markets are not in a bullish trajectory but it shows that the fund flows were more in the large-cap stocks rather than in the small and mid-cap categories. Now it is clearly evident that now the fund flow should start to come to broader markets or on the other hand, the large-cap stocks are expected to trade with rich valuations.

From the retail investor’s point of view, it should be noted that the mid and small-cap stocks rallied in the second leg after the gains of the large-cap stock. So, as an investor, we should now focus more on quality broader market stocks that have corrected in the recent past and are now available at good supports and decent valuations.

To conclude, it is now clear that the portfolios of many retail investors will still be in the negative territory even after the recent outperformance of Nifty in comparison with the global peers’ thanks to the negative returns from the Mid and Small-cap indices. It should also be noted that the markets usually surprise the investors and market participants every time so it is always good to have a SIP and good quality stocks on a regular basis even if your stocks are underperforming as it will give you the benefit of averaging and compounding on regular basis.