Barely one-third of BSE-listed stocks have delivered positive returns in the 12 trading sessions since the peak. Compare that with the highest closing of 2024, which was achieved on 26 September that year. In a comparable period following that day, 42% of stocks stayed in the green. The erosion of market breadth this time could signal a market that has turned far more selective. The numbers suggest India’s current equity rally is being held up by a handful of heavyweight performers, with the majority of stocks slipping behind.
For context, the Sensex closed at 84,997.13 points on 29 October, and since then has fallen 0.1% by the close of trading on 17 November. Over this period, it has risen on eight days, and fallen on five days. On 29 October, 0.7% of BSE-listed stocks also touched their 52-week highs, in line with the broader market.
A shallow pool of winners
The narrowness becomes even clearer when looking at the performance of 4,045 BSE-listed companies since 29 October 2025. A mere 1.3% of them have risen more than 30% from their recent 52-week highs, and another 8.6% are up 10-30%. Another 23% stocks have seen returns less than 10%. That means the remaining 67% have declined.
This suggests that market strength is concentrated in narrow pockets of high-quality, high-liquidity stocks, a pattern that typically emerges in late-cycle phases. A late-cycle phase refers to the mature stage of the market cycle, when rallies narrow and investors become selective.
“The sharp gap between Nifty 50 strength and broader market weakness signals narrow leadership, not a deeper market breakdown,” said Rahul Gupta, chief business officer, Ashika Stock Broking. “After two years of overheated mid- and micro-cap valuations, the market is simply resetting… This phase may look fragile, but it reflects late-cycle selectivity rather than distress.”
Several analysts echoed this view, pointing out that the exuberance that fuelled mid- and small-cap stocks in 2023–24 has faded, giving way to more measured, fundamentals-driven leadership.
“The ongoing mild rally is driven more by fundamentals than the indiscriminate exuberance of the past two years,” said Dr. V.K. Vijayakumar, chief investment strategist, Geojit Financial Services. “This could be regarded as a healthy reset after two years of frothy valuations.”
The bleeding majority
The weakness is apparent on the downside. Nearly 53% of listed companies are down by up to 10% from their recent 52-week highs. Another 14% have corrected 10-30%, and 0.4%—mostly micro-caps—have slumped 30% or more, hit by low liquidity, weak earnings, or both.
In other words, while the headline indices reflect strength, the broader market is flashing signs of fatigue.
“Large caps tend to lead both downturns and recoveries,” said Pawan Bharaddia, CEO & co-founder, Equitree Capital. “What we are seeing now is a reverse of last year’s pattern: leadership returning to high-visibility names as the market recalibrates after two years of stretched valuations in smaller segments. Participation will broaden, but recovery in small- and mid-caps will be stock-specific.”
The valuation conundrum
Adding to the fragility is a valuation paradox. Despite the uneven breadth, India’s stock market remains expensive. Almost half of all listed firms trade at more than 25 times earnings, Mint’s analysis of Capitaline data shows. At the extreme end, 16% command price-to-earnings multiples above 80, fuelled by optimism in sectors such as tech, renewables, and specialty manufacturing.
The middle of the market is more balanced. About 25% of companies trade at 10–25 times earnings, but the comfort ends there. Only 5% sit in the 5-10 multiple band, another 1% in 1-5, while a 19% have a P/E multiple below 1, a red flag that typically signals losses or intense stress.
“Mid- and small-cap valuations had deviated meaningfully from long-period averages,” said Sneha Poddar, vice-president, eesearch, Motilal Oswal Financial Services. “The cool-off is helping reset multiples to sustainable levels. This looks more like a healthy reset than a reversal unless earnings deteriorate sharply or liquidity tightens.”
She added that pockets of the market—especially high-quality banks, industrials, defence, capital goods, autos, and healthcare—should continue to command premium valuations owing to structural growth visibility. “We expect markets to enter a rotation phase, shifting from high-multiple, low-visibility pockets to steady, fundamentally stronger sectors,” she said.
Others cautioned that liquidity-driven valuations couldn’t be sustained indefinitely. “Liquidity-driven valuations are unsustainable. Sooner or later, valuations revert to the mean,” said Dr. Vijayakumar. “High valuations can only be justified with strong visibility of sustained growth.”
Is a valuation-led correction coming?
Analysts differed on whether stretched valuations could trigger a broader correction in 2026. “A valuation-led correction in 2026 is a real possibility—especially in high-multiple stocks priced for perfection,” warned Gupta, pointing to sectors where earnings visibility remains shaky.
But others believe the market is already undergoing a quiet, healthy recalibration rather than a set-up for a sharp correction. “The widening dispersion—exuberance in some pockets and distress in others—is not unusual after a speculative phase,” said Bharaddia. “We don’t foresee a broad valuation-led correction in 2026. Instead, expect mean reversion: frothy, earnings-light names may correct, while stronger businesses should continue to command premiums.”