The year 2025 presented a perplexing picture for investors in the Indian stock market. While headline indices suggested steady growth, the experience for a majority of individual stocks and the portfolios built around them was starkly different. The divergence between index performance and the reality on the ground was one of the widest seen in recent times.
The Illusion of a Rising Market
On the surface, 2025 appeared to be another year of wealth creation. The Nifty 500 Total Return Index posted a gain of 7.2% for the year. This is the figure fund managers benchmark against and retail investors use to measure their own success. However, this reasonable headline return masks a sombre underlying truth. For most stocks, 2025 was a year of decline, not gain.
The critical data point reveals the real story: the median stock in the Nifty 500 index fell by 4.8% over the year. This means the typical company did not just underperform the index; its shareholders suffered an outright loss. The gap between the index return and the median stock's performance stretched to nearly 12 percentage points, a chasm wide enough to swallow the returns of most diversified portfolios.
Concentration: How a Few Heavyweights Lifted the Index
How can an index rise over 7% when its average component falls? The answer lies in extreme concentration. The performance was driven almost entirely by a handful of mega-cap stocks. The top 50 stocks, which constitute just 10% of the index by count but command over half of its total weight, delivered average returns of 8.3%. In stark contrast, the remaining 450 stocks averaged a negative return of 1.9%.
Individual behemoths played an outsized role. Reliance Industries, with its weight exceeding 5% in the index and a stellar 28.6% return, single-handedly contributed more to the index's gains than hundreds of smaller companies combined. Similarly, Bharti Airtel's 32% surge added another massive boost. The mathematical amplification of these heavyweight returns dragged the overall index upward, even as the broader market drifted lower.
A Skewed and Selective Market
The distribution of returns tells a clear story of a market that was not generous. Only 42% of the stocks in the Nifty 500 universe, or 211 companies, managed to post positive returns in 2025. The pain was severe for many: 125 companies lost more than 20% of their value, and 10 stocks were halved or worse. At the extremes, winners like L&T Finance and Hindustan Copper more than doubled, while losers like Tejas Networks and Praj Industries collapsed by over 60%.
Market capitalisation defined the experience. Large-cap stocks delivered a median positive return of 3.1%, with 54% ending in the green. Mid-caps hovered around breakeven. Small-caps bore the full brunt of the sell-off, with a median decline of 10.1% and only one-third of constituents finishing positive. An investor with a tilt toward smaller companies faced a reality completely opposite to what the index headlines suggested.
The Brutal Arithmetic for Diversified Portfolios
This environment created brutal headwinds for active stock-picking and diversified portfolios. Simulations of 10,000 random, equally-weighted portfolios drawn from the Nifty 500 universe revealed daunting odds. A 20-stock portfolio had only a 10% probability of beating the index. As diversification increased, the odds worsened—falling to 5.5% for a 30-stock portfolio and a mere 1.6% for a 50-stock portfolio. The median simulated portfolio returned roughly -1%, regardless of its size. Diversification reduced risk but could not overcome the simple arithmetic: when most stocks fall, most portfolios will too.
For active fund managers, the bar was paradoxically both lower and higher. Beating the declining median stock required only modest skill. However, beating the rising index demanded either prescient, heavy concentration in the few winning mega-caps or a significant overweight in the handful of large-cap outperformers. Broad-based stock selection strategies faced near-insurmountable challenges.
Key Takeaways for the Indian Investor
The implication of the 2025 market behaviour is clear, if uncomfortable. In a phase where two-thirds of stocks trail the benchmark and a randomly assembled 30-stock portfolio has a 95% chance of underperforming, the odds strongly favour owning the benchmark itself through index funds or ETFs. This is not to say stock-picking skill is irrelevant, but in years of such narrow leadership, even skilled investors face arithmetic working powerfully against them.
Such phases test investor patience and tempt them to abandon disciplined strategies. The lesson is to maintain a disciplined asset allocation with the broad market index as a core holding. This approach keeps an investor in the game, positioned to benefit when market leadership eventually broadens beyond a handful of names. The next time someone says "the market did well," the prudent question to ask is: "Which market? The index of a few giants, or the universe of companies where the typical outcome was a loss?"
Anoop Vijaykumar is fund manager and head of equity at Capitalmind AMC. Views are personal.
