The index isn't the market

Summary: Just 50 companies account for two-thirds of the Nifty 500. When smaller stocks collapse, they barely move the headline number. Here's what the index is actually telling you and what it's hiding. Market corrections often confuse investors. You open the financial news and see the index down around 15-20 per cent from its peak. Uncomfortable, yes, but hardly catastrophic. Then you open your portfolio. Many stocks are down 30 per cent. Some 40 per cent. A few look like they have fallen off a cliff. This raises an interesting question: if the index is down only 15-20 per cent, why are so many stocks falling much more? The answer lies in something most investors rarely think about, how stock market indices are constructed. Beneath the surface Popular indices such as the BSE 500 often mask what is really happening beneath the surface of the market. As we move down the market-cap ladder, a larger share of stocks tends to fall sharply during corrections compared with the largest companies. To illustrate this, we examined periods since 2018 when the BSE 500 fell more than 15 per cent from its peak. The 500 stocks were divided into four groups based on market capitalisation: 1-50, 51-100, 101-250 (mid caps) and 251-500 (small c

This article was originally published on March 20, 2026.