The Market Isn't Broken. Investors Are Looking In The Wrong Place

Every day the same story - index up a few hundred and then the index is down a few hundred. News on the war is good and then news on the war is bad. Rupee is down and the Rupee is down even more! Gold and Silver are up and then they are down. Oil is up or sideways or down, no one knows which. US rates are going to go up but markets are not relenting. FIIs are buying a bit and then FIIs are selling a lot. Domestic funds are buying and then domestic funds are still buying.

And so on.........

Problem is, we are knowing all these things. But we are quite unable to know how to put them all together to make some kind of a cogent strategy!

And that stems from the fact that most of us are investors in large caps and mid caps and small caps and micro caps - all at the same time!

For those that are traders, add in futures going up or down all the time, without much of a clue. We keep looking at FII derivative positions swing from large index shorts to some covering and back again to even larger shorts! And we can't seem to make that out either!

All in a terrible puddle is what we are in.

But around us some stocks (mostly those that we don't have) are whizzing up while the 'good' stocks (which we probably hold) are drifting down. Results were good and we thought that would drag us out of the quagmire of confusion. But it has just made matters worse because nothing is working out as planned!

As I said, quite a mess.

Is there a solution? I don't know. I checked the papers, TV and social media for answers from those that are 'supposed' to know but all I got was global gyan.

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So, all I can do is look at the charts for some answers.

And there I find this:

I stare at the three charts (Nifty, Mid cap, Micro cap) and I am struck with a thought - are they all from the same market?

For sure, all of them had lows and highs around the same dates, so some uniformity is seen in the movement. But the pattern of these moves? Very different.

No wonder then that we are having a hard time.

Take Nifty as a first example (left chart). The fall from the 2024 high was sharp and hard and knocked the stuffing out of every stock. From a starting point at the October 2023 low, it was a smash down to 61.8% retracement in a single swoop. Such falls knock the wind out of you. The same happened with the Midcap index (middle chart). The fall went slightly deeper in the case of the Microcap index (right chart). (The small-cap index, for those that are wondering, has been moving similarly to the Midcap index).

If you had an index for stocks beyond market cap No. 750, then that has fared even worse. I had covered some aspects of that decline a few articles ago, when I did an analysis of stocks with market cap below Rs 3,000 crore. Those stocks lost 60-70% and many continue to drop to this day.

So what, one may ask?

The answer is that we all treated each of those lows (synchronised almost exactly in each segment examined above) as being "the" low and possibly bought into most of the advances that followed. Only a few would have captured the lows (as ever) and probably got in when the sense of comfort, that the low was in, was strong enough. Which would have been anywhere between the halfway mark and the top of that leg of the rally. Only to be greeted with another sharp markdown!

What happens to the sentiment then?

Ruptured.

We try a second time. And then a third time. And the result is similar. Another dip.

Now sentiment is bruised and battered.

So, are we all in the same boat? Maybe not. Some small differences to be noted.

Will it help salvage our plight? I don't know. Maybe it can.

Take the Nifty again. It managed to nudge beyond the last high and everyone sought out the champagne. Mainly because the breadth was good. The new high in the Nifty was accompanied by a new high in the Mid caps too! All-is-well, we told ourselves.

Industry experts told us that large cap is the place to be now, as the Nifty should carry on to further new highs. Stocks were drawn down nicely enough, valuations were under repair and expectations had built up. Away many of us went, gathering value buys and breakouts in large caps.

Came 2026 and that action thudded. Good numbers or bad, good commentary or poor, macro factors or micro - it didn't matter. Most of them couldn't make it back.

The Exit India campaign by FIIs continued to run along briskly and the implosion of the INR kept making it worse.

Cut to Micro cap (where most of us live) and below. They didn't quite make it up to the highs but popped just enough to keep our hopes going. The lower top in July 2025 compared to almost new highs in Nifty and Midcap by December 2025 told us that the fizz was out in this space. Did we listen? Probably not. Added more on the dip into the synchronised bottom of March 2026. The pop since? Yet another lower top, so far.

Cut to Mid cap. Hey, what's this, we say! Another new high just now? Now, that is a departure. We quickly take a look at what the Nifty is doing at this time and we find an oops! No rally and now a possible retest of earlier lows?

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What does that say about the market? Mid caps are trading much better right now compared to the other segments.

Obviously, then, that is where we should be.

But that is just 150 stocks, you say.

Absolutely true.

But that's mainly because the index makers cannot have an endless number of stocks in an index.

So, it is our job to sift through the other stocks that may wear a mid cap look and feel and future. And focus on them.

Just to use a small example (not to be taken as any recommendation, mind), Avalon Tech is a Rs 10,700 crore market cap company that is attached to the power sector. So is Tata Power. But the price action of the former is very different from that of the latter. Its move is not caught by the Midcap 150 (it is part of the BSE 1000 index and the Smallcap index). While Tata Power moves are quite a bit influenced by moves in the main market, Avalon may choose to cut its own path.

This doesn't make Tata Power a bad stock to own. Just that Avalon is the better one if one is looking at prospects for power and allied stocks in this market. Some of you may be thinking that the two cannot be compared. But that is not quite correct as far as an individual investor is concerned. If power and allied stocks are where we should have some money invested (given the big government support and all kinds of news flow) then investors, who always have limited resources, need to have a judicious allocation. You cannot get blindly into a large-cap stock from a hot sector just because it is a leader. The small investor needs to find the nimble names. That is where his money is made.

So, this is the takeaway I have from looking at the charts.

• Be with the mid caps (generally)
• Find the to-be midcaps (needs some diligent research)
• Don't get swayed by images of good stocks-for-life stuff (that is for bull markets).
• Be very selective with large caps (the Exit India banging is still a problem for them).
• Stay away from micro caps for now.

I came away with this view by taking a look at the charts. Looking at the screen or asking people for tips or reading deep-dive fundamental reports is not going to do the job.

Now I know where I really need to do the deep dive into fundamentals.

Technicals reflect the true fundamentals. Remember that. Always.

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