Nifty Up, But Market Breadth Weak: 65% of the Rally Driven by Just 10 Heavyweight Stocks

The recent Nifty rally from the April 2025 bottom has been driven primarily by a narrow set of heavyweights rather than broad-based market participation. Data reveals that the top 10 Nifty constituents have contributed nearly 65% of the total index gains, underscoring how concentrated the leadership has been in this upmove.

Key index majors such as Reliance Industries, HDFC Bank, Mahindra & Mahindra, Larsen & Toubro, and Bharti Airtel have delivered the highest returns and played a disproportionately large role in lifting the benchmark. Their combined weightage and outperformance explain why the index continues to show strength despite weaker underlying market dynamics.

This narrow leadership highlights a crucial divergence: while headline indices remain resilient, mid-cap and small-cap stocks have seen muted or negative performance, causing many retail and diversified portfolios to struggle.

Rally Lacks Breadth: What the Data Shows

A closer look at contributions reveals the extent of concentration:

• Reliance Industries alone has contributed nearly 17% to the entire rally.
  
  
• HDFC Bank, L&T, and M&M added significant incremental gains.
  
  
• Some stocks, such as ITC, have contributed negatively despite having meaningful weight in the index.
  
  

Despite the Nifty maintaining elevated levels, the broader market breadth remains weak, with very few stocks participating in the rise. This is indicative of an index-driven rally, not an actual market-wide bull phase.

Why Heavyweights Are Driving the Rally

Several structural factors explain this narrow participation:

1. Earnings Visibility and Stability

Large-cap heavyweights enjoy stronger earnings momentum, predictable cash flows, and better sector leadership, making them safer bets for institutional investors.

2. Valuation Comfort

Compared to overheated mid- and small-caps, heavyweights offer more reasonable valuations, prompting fresh buying and reallocation of funds.

3. Strong Institutional Flows

FIIs and domestic institutions prefer liquid, high-quality names during uncertain phases, directing bulk of their flows toward mega-cap stocks.

Broader Market Under Pressure

In contrast, the wider market continues to face multiple headwinds:

• Elevated valuations in small and mid-cap segments
  
  
• Liquidity challenges due to selective risk-off behaviour
  
  
• Uneven earnings performance across sectors
  
  
• Profit-taking after a sharp multi-year run
  
  

As a result, investors with diversified portfolios may not be experiencing gains similar to the index, despite Nifty’s upward move.

Market Outlook: Rally May Lack Durability Without Broader Participation

Historically, rallies led by just a handful of stocks often struggle to sustain unless breadth begins to improve. For a healthy and durable uptrend, markets typically require:

• Better participation from mid and small-caps
  
  
• Stronger earnings recovery across sectors
  
  
• Stabilisation of valuations in broader segments
  
  
• Wider sectoral rotation
  
  

Until these factors align, the Nifty may continue to move higher on the back of a few large, liquid names, but the overall market may not reflect a full-fledged risk-on rally.