Is your portfolio bleeding despite Sensex near its record high? This could be the reason

India’s stock market is showing signs of contraction. Even as the BSE benchmark Sensex inches closer to its all-time high, many retail investors remain disappointed with their portfolio returns. The reason lies in the broader market weakness, with a large number of stocks still down 20–60% over the past year — clear evidence of a lingering bear-market grip.

Typically, a stock that falls 20% or more is considered to be in bear-market territory, and within the BSE 500 index, over 100 stocks now meet this criterion. This sharp contrast highlights the market’s narrowing breadth despite headline indices staying resilient.

Worst-performing BSE 500 stocks

According to data from Capitaline, 285 stocks from the BSE 500 pack are trading with cuts. Among those, 112 are down over 20%.

Praj Industries emerged as the worst performer, shedding 60% in a year to ₹329.55 apiece. Meanwhile, Tejas Networks, down 59% in a year, followed suit. Vedant Fashions, KNR Constructions, Ola Electric, Brainbees Solutions and Sterling & Wilson were among stocks that were worst hit, shedding over 50% each, highlighting a broader market weakness rather than a sector-specific trend.

Several Tata group stocks like Tata Motors PV, Trent, Tata Elxsi and Tata Chemicals also saw over 20% declines.

What explains this divergence?

According to analysts, this time the pressure is mainly on mid-cap and small-cap stocks. Since most HNIs and retail investors have a higher allocation to mid- and small-caps, their portfolios are taking a hit.

“The headline indices are being driven by a handful of large, predictable businesses with strong cash flows, global linkages and balance-sheet strength. These names have benefited from steady FPI inflows, lower volatility and institutional preference for safety,” said Harshal Dasani, Business Head at INVAsset PMS.

A broad set of mid-caps and small-caps has gone through a valuation reset, margin pressure and delayed earnings recovery, keeping sentiment muted.

Elara Capital said that while the overall earnings growth was encouraging, overall breadth remained narrow, with Oil & Gas, Metals & Mining, and Cement accounting for ~70% of incremental PAT in Q2FY26.

Is this narrow leadership a sign of bull-market fatigue?

Analysts expect this narrow leadership trend to continue for a while, especially in a regime where liquidity is concentrated, and earnings visibility favours a select group. This divergence might signal fatigue or a maturing bull market.

Prolonged divergence generally indicates that the bull market is maturing, not ending, said Dasani, adding that the leaders may keep compounding, but they won’t be able to drag the entire market indefinitely.

Broader participation typically requires either an earnings inflection in mid-caps or a clear rate-cut cycle that brings capital back to riskier segments, he added.

Independent market analyst Ambareesh Baliga says that the weakness is broad-based across sectors because mid- and small-caps exist across all industries.

“Once these stocks start bouncing back—even for external reasons—investors typically jump in again. Momentum investing is still very common, despite people often talking about long-term investing,” he added.

Nitin Jain, Senior Analyst at Bonanza, says there is a high probability of a broadening rally beyond narrow leadership in the Sensex. He expects Sensex could reach between 95,000 and 107,000 by the end of 2026, implying upside potential of around 13-26% from current levels, supported by strong earnings growth projections.

“Domestic factors such as policy reforms, infrastructure progress, robust consumption, and growing retail investor participation further bolster the case for a widening market rally,” he added.

What should retail investors do in a market?

The current market environment now commands caution rather than aggression.

This is a phase to stay disciplined, not aggressive. Retail investors should avoid chasing momentum in pockets that have run far ahead of fundamentals, said Dasani. “Instead, stagger entries, favour strong balance sheets, and stick to asset-allocation rules.”

Baliga, too, said that this can be a good opportunity to accumulate more mid- and small-cap stocks if you hold them. But don’t buy a stock just because it has fallen—buy only if you have conviction, he added.

Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.