When the Sensex hit a fresh 52-week high on 29 October, closing at 84,997.13 points, it seemed to signal a robust bull market. However, a closer look reveals a far more fragile picture, where the celebrated rally rests on the shoulders of just a handful of major stocks.
A Fractured Bull Run
Despite the headline index touching a peak, the market's internal strength has significantly weakened. An analysis of trading sessions from 29 October to 17 November shows that the Sensex experienced a slight decline of 0.1%. During this period, the index rose on eight days and fell on five, indicating a lack of strong directional momentum.
The most telling data point is the performance of the broader market. Since the 29 October peak, more than two-thirds of stocks listed on the Bombay Stock Exchange (BSE) have declined. Only a meager one-third have managed to stay in positive territory. This is a steeper drop in market breadth compared to the period following the 2024 high on 26 September, when 42% of stocks remained in the green.
The Concentration of Gains
The narrow nature of the current market upswing becomes starkly evident when examining the performance of 4,045 BSE-listed companies. The data paints a clear picture of concentrated gains:
- Only 1.3% of stocks have surged more than 30% from their recent highs.
- Another 8.6% have gained between 10% and 30%.
- Approximately 23% of stocks have seen marginal positive returns of less than 10%.
- The overwhelming majority, a significant 67%, have declined in value.
This pattern suggests that the market's strength is not widespread but is confined to narrow pockets of high-quality, high-liquidity stocks. Rahul Gupta, Chief Business Officer at Ashika Stock Broking, commented, "The sharp gap between Nifty 50 strength and broader market weakness signals narrow leadership, not a deeper market breakdown." He views this as a market reset after two years of overheated valuations in mid- and micro-cap segments.
Valuations and the Path Ahead
Adding to the market's fragility is a significant valuation paradox. Even with the uneven participation, India's equity market remains expensive. Almost half of all listed firms trade at a price-to-earnings (P/E) multiple of more than 25 times. A staggering 16% command P/E ratios above 80, often driven by sectors like technology, renewables, and specialty manufacturing.
On the other end of the spectrum, a concerning 19% of companies trade at a P/E multiple below 1, which typically indicates losses or severe financial stress. This polarization highlights the underlying risks.
Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted, "The ongoing mild rally is driven more by fundamentals than the indiscriminate exuberance of the past two years." He, along with other analysts, sees this as a healthy correction after a period of frothy valuations.
Looking forward, analysts are divided on the potential for a major correction in 2026. Some, like Rahul Gupta, warn of a "real possibility" of a valuation-led correction, especially for high-multiple stocks with shaky earnings. Others, like Pawan Bharaddia, CEO & Co-founder of Equitree Capital, anticipate a market rotation rather than a broad crash. "We don't foresee a broad valuation-led correction in 2026. Instead, expect mean reversion," he said, suggesting that overvalued stocks may correct while strong businesses continue to command premium prices.
In conclusion, while the Sensex headline may project confidence, the Indian stock market's foundation is showing signs of strain. The rally's dependence on a small group of heavyweight stocks and the expensive valuations of many companies suggest that investors should brace for increased selectivity and potential volatility in the coming months.
