In today’s Finshots, we try to make sense of why the broader market feels oddly muted even as the headline stars — the NIFTY and the SENSEX, are busy breaking fresh all-time highs.

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The Story

This week delivered two big market milestones almost back to back. On 26th of November 2025, the NIFTY clawed its way back to 26,000 after a short spell of weakness. And just a day later, the SENSEX casually strolled past the 86,000 mark for the first time ever. As you’re reading this, both indices are either sitting at fresh all-time highs or hovering very close.

But there’s a good chance that your portfolio may not be feeling much of this excitement. When you open your trading app, you’re probably not seeing a sea of green. Maybe it’s flat. Maybe it’s even bleeding a little. And that’s because while the blue-chip indices have inched up by about 6–7% over the past twelve months, the smaller pockets of the market haven’t kept pace. For context, the BSE Smallcap index is down 5%, and the Midcap index has managed a modest 2% return in the same period.

This made us wonder, “If the markets are breaking records, why doesn’t it feel like it in your own portfolio?”

For starters, the buzz around possible rate cuts — both from the US Fed and the RBI, has lifted market mood. Lower interest rates simply make it cheaper for companies to borrow, expand, and hopefully post better earnings. So global sentiment has swung upbeat, at least for now.

But there’s something you shouldn’t miss. This rally in the blue-chip indices, especially the NIFTY, is deeply skewed. The rise isn’t broad-based at all. It’s been propped up by just a handful of heavyweight stocks, which can make the entire index look stronger than it actually is. To put that into perspective, only about a quarter of NIFTY stocks have contributed to nearly 80% of the 1,500-plus points the index has added since October! But a large chunk of NIFTY 50 names haven’t even hit new highs in 2025.

A big part of what’s happening is something you’ve probably noticed in the headlines already. Foreign Institutional Investors (FIIs) have dumped a record ₹2.67 lakh crore worth of Indian equities in 2025. And they’ve had their reasons. The India–US trade deal hasn’t moved smoothly, the dollar has been flexing its muscles, and early FY26 numbers from FII-heavy sectors like IT, private banks, and NBFCs have been underwhelming. When uncertainty piles up like this, investors instinctively retreat to safety. They pull money out of the riskier, more expensive small and mid-cap names and park it in the most liquid, stable large caps. And when money moves like that, it naturally flows into a handful of big stocks, lifting the index even if the rest of the market isn’t going anywhere.

In fact, if you take an even closer look, the story becomes clearer. 

Among the quarter of NIFTY stocks driving the rally, just six heavyweights — Reliance Industries, HDFC Bank, Bharti Airtel, SBI, L&T, and Axis Bank, have delivered nearly 60% of the index’s gains. And a big reason for this is the wave of foreign passive money being forced into names like HDFC Bank thanks to the quarterly reshuffle of the Morgan Stanley Capital International (MSCI) indices.

Now, during this index rejig, MSCI isn’t just looking at a company’s market cap. It also checks how much of that stock is genuinely available for foreigners to buy. After the HDFC–HDFC Bank merger in 2023, foreign ownership in HDFC Bank shot up so close to the regulatory ceiling that there was barely any “room” left for new foreign investors. When that happens, MSCI cuts the stock’s weight, signalling that it’s harder to access.

But in the past few quarters, foreign shareholding has dipped a little, opening up enough space for MSCI to restore HDFC Bank to its full weight. That means passive foreign funds — the kind that track MSCI indices, have no choice but to buy more. And this, analysts say, is expected to bring in roughly $2.5 billion into Indian equities, with a massive $1.8 billion flowing in due to HDFC Bank alone, thanks to this weight upgrade.

There’s also the uncomfortable reality of a massive liquidity drain playing out in the market right now. In simple terms, retail investors — who were earlier heavily parked in small and mid-cap stocks (directly and through mutual funds), are quietly pulling money out. And instead of doubling down, they’re shifting to flexi-cap funds to spread their risk a bit more.

Again, there could be three clear reasons behind this shuffle.

First, valuations in the mid and small-cap space have stretched to the point where investors are getting jittery. A Moneycontrol analysis points out that the MidCap index is trading at 25 times one-year forward earnings, above its 10-year average of 23. The SmallCap index, at 23 times, is even more inflated compared to its long-term average of 18. So, when prices run ahead of fundamentals, retail investors tend to get nervous, and rightly so.

Second, the IPO frenzy. Retail investors have poured ₹30,000 crore into IPOs in FY26 while simultaneously selling ₹4,700 crore worth of shares in the secondary market. This is their worst selling streak since FY19. And with over ₹76,000 crore worth of IPOs hitting the market just this month (November 2025), many retail and HNI investors have been offloading their mid and small-cap holdings to free up cash for fresh applications.

The logic?

Quick listing gains. It’s the classic “why wait for long-term returns when there’s a chance to make money next week?” mindset. And it’s not just IPOs. Even the pre-IPO market is buzzing, with investors piling into unlisted shares of soon-to-list companies hoping to ride the valuation premium. But to fund all of this, they’re selling what they already hold. That’s added a lot of selling pressure to the broader market, while the index heavyweights have barely flinched.

And finally, gold and silver have been on a tear. With precious metals rallying, many investors have preferred the comfort of those shiny gains over the choppy fundamentals of smaller companies. Naturally, this has pulled even more money out of secondary markets.

But what does all this really mean for the markets, you ask? Are we already in the middle of a bull run?

In the very short term, maybe. The momentum looks strong. But that doesn’t automatically mean the bull run has strong legs. There are still plenty of moving pieces: overall valuations remain on the higher side, and even though the Russia–Ukraine peace accord has lifted sentiment, the situation is far from settled. So the market’s footing right now isn’t as firm as the headline numbers make it seem.

So as an investor, the best thing you can do is stay calm and avoid getting swept up in the excitement. Don’t chase anything just because it’s rising. Markets have a way of reminding us that what shoots up can slide down just as quickly. So stick to your plan, avoid risky shortcuts like selling solid holdings for quick gains, and make sure you understand the fundamentals behind every move you make.

Until next time…

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