If you find polarisation between performance of large-cap and mid-cap stocks (the Nifty Midcap index is down 4 per cent while Nifty50 has jumped 12 per cent in last one year), chances are you have also seen the same in the large-cap pack too. A few stocks driving the index, while the rest of the market remains a meek spectator, is a common sight these days. The top 10 Nifty stocks have contributed 75 per cent to the rally in the index since its lows in February. However, the trend may soon reverse.
The holdings of mutual funds in such stocks have breached historical averages, while allocation by foreign portfolio investors is close to the record high. In the past, whenever such a thing has happened, it was followed by under performance in these stocks and outperformance of the lowest weighted 30 Nifty stocks, according to a report by Elara Capital. In the broader market, polarisation has in the past continued for longer before a broadening took place at a larger scale. The same may happen this time as well.