The Indian stock market delivered a mixed performance in October, with gains in benchmark indices masking a deeper correction across the broader market. While the Nifty 50 climbed 2% during the month to close at 23,053, investors in midcap and smallcap stocks faced a very different reality.
The Nifty Midcap 150 declined 3.7%, while the Nifty Smallcap 250 plunged 5.8%, highlighting the widening gap between large-cap stocks and the broader market.
In its October 2026 Equity Market Review, HSBC Mutual Fund said the headline index was supported largely by better-than-expected IT earnings and a shift in investor interest towards large-cap technology stocks. However, several factors weighed on smaller companies, including elevated crude oil prices, rising domestic and global bond yields, continued foreign investor selling and heavy primary-market supply.
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The unwinding of leveraged retail positions in smaller companies added to the pressure, contributing to the sharp correction in midcap and smallcap stocks.
Sectoral performance also reflected this divergence. The Nifty IT Index emerged as the biggest outperformer, surging 17.7% in October, while healthcare gained 2.6%. In contrast, capital goods, metals and consumer durables declined 7.2%, 6.8% and 4.9%, respectively.
Foreign portfolio investors remained net sellers in the secondary market, offloading $4 billion worth of equities. Primary-market inflows of $1.4 billion partly offset the selling, while domestic institutional investors provided significant support with purchases worth $6.5 billion. The month also saw 13 initial public offerings raising approximately $4.7 billion.
Despite the near-term volatility, HSBC Mutual Fund remains constructive on Indian equities over the medium term. However, it expects returns to be increasingly driven by corporate earnings, with investors needing to be more selective.
The fund house highlighted that earnings growth remained encouraging, with Nifty companies reporting a 22% year-on-year increase in earnings for the quarter up to October-end.
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It also pointed to improving large-cap valuations, with the Nifty trading at 16.9 times its 12-month forward earnings, around one standard deviation below its 10-year average.
However, elevated crude oil prices, tighter financial conditions, persistent foreign investor outflows and below-normal monsoon conditions remain key risks.
HSBC MF said it prefers companies with visible earnings, strong balance sheets and pricing power, while advising caution on highly leveraged and illiquid stocks.
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