Sensex set to post negative return after 6 fiscal years; midcaps outperform

BSE Sensex is set to post a negative return after a gap of the past six financial years due to a sharp sell-off by foreign portfolio investors (FPI) amid geopolitical concerns in West Asia and a rising rupee.

 

Thus far in the financial year 2025-26 (FY26), data shows the Sensex has slipped 4.9 per cent, while the Nifty 50 is down 2.97 per cent.

 

Earlier in FY20, the benchmark Sensex tanked 23.8 per cent due to the outbreak of the Covid-19 pandemic, while the Nifty 50 crashed 26.03 per cent. 

 

 

Over the last 12 - 18 months, explains G Chokkalingam, founder and head of research, secondary markets back home withstood several shocks, including selling due to overvaluation, liquidity crunch due to the IPO boom, the Iran-Israel conflict, the Indo-Pakistan conflict, the AI threat to the IT sector and now the West Asia war.

 

“The sharp fall has made the market valuations attractive. Individually, many high-quality small-and midcap stocks have become very attractive. That said, investment must be made in stocks of fundamentally sound companies from a long-term view,” he said.

 

Among the Nifty 50 stocks, two Tata Group companies – Tata Consultancy Services (TCS) and Trent have declined 36 per cent and 34 per cent, respectively, while Tata Motors Passenger Vehicles slipped 26 per cent. Wipro, ITC, Infosys, Adani Enterprises, InterGlobe Aviation and HDFC Bank were down in the range of 17 per cent to 28 per cent.

 

Midcaps rise to the occasion

 

The midcaps, however, paint a different picture as compared to their large-cap peers. The Nifty Midcap 100 index has rallied 4.7 per cent so far in FY26, recording positive returns for the sixth straight fiscal year. 

 

Nifty Smallcap 100 index, though, is down 2.96 per cent thus far in FY26. Data shows the index recorded a 13.8 per cent negative return in FY23 and a fall of 46.13 per cent in FY20.

 

Over half, or 292 stocks, from the BSE 500 index have recorded negative returns thus far in FY26. Of these, data shows 9 stocks tanked more than 50 per cent, and 92 stocks plunged between 25 per cent and 50 per cent.

 

Among sectors, the Nifty Realty index, the top loser among sectoral indices, is down 21.3 per cent in FY26. The index has recorded its worst performance since FY20, when it tanked 34.8 per cent. Nifty IT index, is down 19.9 per cent, while, Nifty FMCG and Nifty Media indices are down 13.4 per cent and 12.3 per cent, respectively.

 

The overall market sentiment in FY26 was supported by domestic institutional investors (DIIs) who made a net inflow of Rs 8.35 trillion, of which Rs 5.14 trillion was the net investment made by mutual funds (MFs). 

 

With this, DIIs including MFs have turned net buyers for the fifth consecutive FY. In FY25, DIIs pumped in Rs 6.07 trillion (MFs – Rs 4.71 trillion), data shows.

 

FPIs, on the other hand, withdrew Rs 1.77 trillion in Indian equities during FY26.

 

Wealth allocation for FY27, suggests Rahul Arora, chief executive officer for Institutional Equity at Ashika Group, should be 60 per cent in equities, 10 per cent in gold, 10 per cent in bonds and fixed deposits, 10 per cent in commercial real estate, 5 per cent between silver and crude, and 5 per cent cash. Valuations, he believes, have become reasonable, and ‘very attractive’ in some cases/stocks.

 

“As FY27 progresses and geopolitical situation stabilizes, the lure of precious metals could fade. Expect equities to give mid-teen returns, precious metals mid-to-high single-digits. Bonds and fixed deposits would be a good counter-balance to the portfolio,” he said.