Sensex and Nifty are touching record highs. Why is your MF portfolio not mirroring that rise?

Sectors such as IT and pharma, under pressure because of US President Donald Trump’s actions on tariffs and H-1B, are still stuck well below their September 2024 highs. Many have recorded losses since the beginning of this calendar year, even as the Sensex and Nifty have risen 10 per cent since January. The BSE small cap index is down over 5 per cent while the mid cap index is barely up over 1 per cent.

How narrow is this rally?

In effect, less than a quarter of the stocks in the two benchmark indices are leading the rally, while much of the rest are still out of sync with this upsurge. But will they play catch-up? The road ahead looks tough, given that market players consider valuations for mid-cap and small-caps to be still way higher that what the fundamentals suggest, primarily because they attracted much of the capital flows in the run up to the rally that led up to October 2024.

Large caps are the ones where valuations are now starting to look attractive in India, a Mumbai-based market analyst said.

Another factor why a number of new MF investors do not see any gains in their MF portfolios is because of the fact that over the last 14-months Sensex has merely reclaimed the levels it was at in September 2024. So, even as the Sensex has risen by around 17 per cent since April 2025 when it was trading at levels of around 73,000, investors who had invested a lumpsum amount a year back or so, may have only seen recovery of their notional losses.

Even for those who have been investing via the SIP route, the investments sould have averaged out and the gains may not be in tune with the 17 per cent Sensex rise in last seven months.

There’s a third factor that could be in play. The initial public offering (IPO) pipeline that was a standout feature of this year, seems to be drying up. Given that most of these issues were ‘offer for sale’, which are draining away investor funds and effectively providing exits for institutional investors, as well as founders and promoters, this slowing trend in the primary market (IPOs) may not be such a bad thing.

This was pulling away money from retail and institutional investors into the IPO market, but much of that money was not going into companies to be used for economic expansion and growth, but instead was being pocketed by existing investors and promoters who wanted to exit. With this IPO rush slowing, there is a chance that money could come back into the secondary markets and add to the mutual fund SIP inflows that have continued to flow in.

The fourth aspect is that the Indian stock markets have not really been in sync with global market rallies for most of this year. Part of this is because India is not seen as being part of the AI rally that has powered stocks from the US and Europe to China, and Japan. On the contrary, India has been losing out FPI (Foreign Portfolio Investor) flows, until recently.

With the talk of an AI bubble growing louder, there is a theoretical possibility that inflows into markets such as India that are seen to offer a counter narrative, however serendipitous that might be, could seem attractive. Also, with expectations of a US Fed interest rate cut next month, there are chances of more equity flows to emerging markets, and that could benefit India as well.

Will the bull rally continue?

For the market momentum to continue, a number of factors will have to play out. While the current rise has been led by decline in brent crude prices which are very sensitive to Indian economy and markets, a decline in brent crude prices over the coming months and quarters will play a key role in further rise of equity markets. This is because it will not only keep the current account deficit under control, but also keep inflation under check and also the rupee stable.

The interest rate cuts by the US Fed is the other key factor. A cut in interest rates in the US would not only mean possibly lower interest rates in other economies including India, it would also lead to inflow of funds into Indian equities that could further push the markets.