Mid- and small-cap stocks' risk-reward profile more attractive currently

Market rally could become more broad-based

The benchmark large-cap index (Nifty 50 Index) set another new all-time high recently.  However, investors looking either at their direct equity portfolios or equity fund-based portfolios are likely to see not only underperformance vis-à-vis the benchmark, but also the possibility of negative returns. The key factor responsible for this divergence in performance is the lack of market diversity or the narrowness of the equity rally.

The three data points offered below validate the lack of market diversity in equity performance:

Weak market breadth: A look at the performance of the stocks constituting the four primary indices — Nifty 50, Nifty