Indian investors have grown increasingly cautious in recent months, choosing to concentrate their money in just a handful of stocks while avoiding most of the broader market. According to data from Capitaline, nearly ninety percent of all traded counters are now between ten and ninety six percent below their fifty two week highs. This means that while the frontline indices such as the Sensex and Nifty are only six to ten percent down from record levels, the underlying market breadth paints a far bleaker picture.

Out of more than four thousand four hundred stocks tracked, only ninety eight are still at or near their peak levels. Companies like Eternal, which was earlier known as Zomato, Sterlite Technologies, and SML Isuzu are among this rare group. Another three hundred seventy six have slipped less than ten percent from their highs. The rest have lagged behind significantly, with more than one thousand shares now trading at half or less of their earlier values.

This uneven performance has created a clear disconnect. The broader BSE Midcap index is down nearly nine and a half percent from its peak, and the Smallcap index has fallen over ten percent. In contrast, the benchmark indices have seen only a single digit decline, highlighting how concentrated investor faith has become in a select few large cap names.

Market experts warn that the caution is justified. Saurabh Mukherjea of Marcellus Investment Managers pointed out that many small cap and mid cap companies had witnessed their share prices double in the last three years without a matching improvement in business fundamentals. He believes the sensible strategy is to remain invested in quality large cap companies where valuations are more reasonable and earnings visibility is stronger. His firm’s portfolios currently carry large weights in HDFC Bank and Asian Paints.

Others echo this view. Siddarth Bhamre, head of research at Asit C Mehta, noted that while liquidity continues to flow into equities, it is masking the fact that corporate earnings are underwhelming. In his words, the last two years have delivered little in terms of absolute returns for mutual fund investors, despite the apparent market resilience. This suggests that valuations are being stretched without strong profit growth to back them up.

Sector data further confirms the weakness. Information technology, real estate, and oil stocks are trading about nineteen to twenty four percent below their one year highs, while consumer durables, automobiles, and metals are down by around eleven to sixteen percent. Pharma, banking, and financial services have held up better, but even these sectors remain slightly below their recent peaks.

Prominent names like Ola Electric, Raymond Lifestyle, Vodafone Idea, and Adani Green Energy are among those that have tumbled more than fifty percent from their highs. These sharp declines demonstrate how quickly sentiment can sour once valuations come under scrutiny.

The selling by foreign investors has been a major driver of this pressure. Between September 2024 and August 2025, Foreign Portfolio Investors pulled out nearly one lakh sixty two thousand crore rupees from Indian stocks. Domestic Institutional Investors, on the other hand, provided an important counterbalance, adding close to seven lakh crore rupees over the same period. This tug of war between global pessimism and local support has kept the markets from sliding deeper but has also reinforced the trend of selective buying.

For retail investors, the lesson is clear. While there are opportunities in the market, the majority of stocks are struggling and only a small group continues to attract serious money. Until earnings growth becomes stronger and valuations more balanced, it may be wiser to focus on established large cap names rather than chase momentum in weaker mid caps or small caps. The ability to remain patient and disciplined is likely to be rewarded more than speculative bets in this phase of the market.

 

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