Vimal began his journey in the stock market two years ago. Over this period, he invested around Rs 3 lakh at different intervals. However, most of his investments are still in the red. His portfolio primarily consists of 10 mid-cap and small-cap stocks. Despite the broader market's recovery in recent months, his shares have shown little to no upward movement. Each day, Vimal finds himself staring at the Sensex and Nifty charts, hoping for signs of a turnaround that never seem to come.

What Vimal didn’t realize was that his reliance on the Sensex and Nifty as indicators of his portfolio’s health was misguided. These indices mainly reflect the performance of large-cap companies.

Since his investments were in mid- and small-cap stocks, their performance had little correlation with the movements of the Sensex and Nifty.

Like many retail investors, Vimal misunderstood the market signals and benchmark indices, failing to recognize that different segments of the market behave differently.

Understanding the Indices: Sensex and Nifty

India's two primary benchmark indices are the BSE Sensex and the NSE Nifty. These indices track the performance of some of the country’s largest and most influential companies.

* Sensex, the index of the Bombay Stock Exchange (BSE), is made up of 30 large-cap stocks.

* Nifty, from the National Stock Exchange (NSE), comprises 50 large-cap stocks.

Companies like Reliance Industries, HDFC Bank, TCS, Infosys, ICICI Bank, SBI, and Bharti Airtel are common constituents of both indices. These are the stalwarts of the Indian stock market, and their price movements determine the direction of the Sensex and Nifty.

Because these indices only reflect large-cap stocks, movements in small- or mid-cap stocks don’t impact them. Hence, Vimal’s losses in small and mid-cap stocks remained invisible to the indices. This is why investors must understand what benchmark their investments actually track before drawing conclusions based on........

© Mathrubhumi English