Hidden pain! Why did investors lose money in 750 smallcaps when Nifty rallied 2500 points?

The Nifty has staged a strong recovery over the past month, surging nearly 13% as foreign investors returned to Dalal Street and heavyweight stocks bounced back from their recent lows. Yet, the rally has brought little relief to hundreds of smallcap investors, with more than 750 stocks delivering negative returns during the same period.

An analysis of stock market data compiled by ACE Equity shows that 769 stocks declined between October 8 and November 8, even as the benchmark Nifty recovered sharply. The Nifty climbed 2,812 points, or 12.65%, during this period.

The contrasting performance highlights the narrow nature of the market recovery, with foreign institutional investors (FIIs) largely favouring established large-cap companies, while smaller stocks continue to struggle. The weakness has been particularly painful for retail investors, many of whom have substantial exposure to midcap and smallcap companies following their strong performance in previous years.

Hundreds of stocks remain under pressure

Several well-known companies feature among the stocks that have declined despite the Nifty’s recovery. According to ACE Equity data, eMudhra fell 33.73% between October 8 and November 8, while Wardwizard Innovations & Mobility declined 32.53%.

Genesys International lost 31.58%, Morepen Laboratories dropped 30.93%, and KRN Heat Exchanger & Refrigeration fell 30.90%. Sterlite Technologies declined 30.22%, while MTAR Technologies slipped 26.79%. Electronics Mart India lost 24.39%, Kirloskar Oil Engines fell 24.54%, and RR Kabel declined 21.44%.

Other notable laggards included Netweb Technologies, down 16.91%, HFCL, down 15.88%, and Praj Industries, which lost 12.29%.

Also Read: FIIs are back with a bang but why are stocks from only 2 sectors their favourites? The losses show that the market recovery has left behind a substantial number of companies across technology, pharmaceuticals, engineering, manufacturing and other sectors.

For investors holding these stocks, the sharp improvement in benchmark indices has done little to offset the damage suffered during the broader market correction.

Why is Nifty rising while smallcaps struggle?

Apurva Sheth, Head of Market Perspectives and Research at SAMCO Securities, believes the divergence comes down to buying being concentrated in a handful of heavyweight stocks.

“A lot of investors are scratching their heads thinking why their portfolio isn’t moving up with Nifty. The simple answer is you don’t own what is moving up,” Sheth said.

According to his analysis, the Nifty Top 10 Equal Weight Index gained 10.64% over the preceding month, while the Nifty Midcap 150 and Nifty Smallcap 250 indices each declined 2.74%. The Nifty Microcap 250 fell 5.32%.

The first major reason behind the divergence is valuation. Several largecap stocks had suffered heavy losses during the market correction that began in January 2026, bringing their valuations to more attractive levels.

This encouraged investors to return to established companies as crude oil prices eased and concerns about the global economic outlook moderated.

Smaller companies, meanwhile, entered the correction with relatively elevated valuations following their earlier rallies. Investors have remained selective amid concerns about earnings visibility and the sustainability of growth.

Foreign money is chasing large companies

The second major factor is the return of foreign institutional investors. After months of sustained selling, overseas investors have begun deploying substantial capital into Indian equities, helping lift banking, technology, telecommunications and other heavyweight stocks.

Foreign investors have bought more than $4.1 billion worth of Indian equities so far in November, according to Reuters, marking the strongest monthly inflow since September 2024. However, foreign institutions generally prefer large, liquid companies where they can deploy substantial amounts without significantly affecting share prices.

This has benefited stocks such as ICICI Bank, HDFC Bank, Infosys, Bharti Airtel and Reliance Industries. According to Sheth, ICICI Bank and Infosys each gained 16% over his one-month review period, while Bharti Airtel advanced 14.61%. Kotak Mahindra Bank rose 10.08%, HDFC Bank gained 10%, and Reliance Industries climbed 8.44%.

The ten heavyweight stocks in his analysis delivered an average return of 10.19%, highlighting how concentrated the rebound has been.

For smaller companies, the absence of similar institutional buying has limited the recovery despite improving sentiment across the broader market.

Can the broader market catch up?

The broader market has also faced pressure from stretched valuations, uneven earnings performance and reduced risk appetite following months of geopolitical uncertainty and high crude oil prices.

Although the September-quarter earnings season has shown signs of improvement, investors are increasingly distinguishing between companies delivering sustainable profit growth and those whose earlier valuations were driven by aggressive expectations.

The next test for Dalal Street will be whether sustained foreign inflows and stronger corporate earnings encourage buying beyond the largest companies.

Disclosure: This article was written by Podishetti Akash, who is not a SEBI-registered Research Analyst or an Investment Adviser. Podishetti Akash and his ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclosures here.