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Why the Nifty and Sensex Can Soar While Your Portfolio Stays Stagnant - Vijay Kedia's Take

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  Published in Stocks and Investing on Friday, November 28th 2025 at 6:18 GMT by Zee Business

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Why the Nifty and Sensex Can Soar While Your Portfolio Stays Stagnant – Vijay Kedia’s Take

The headline that often pops up on the Indian financial news feed – “Nifty and Sensex scaled life highs, but your portfolio has not moved” – is a stark reminder of the disconnect that exists between the performance of market indices and the real‑world returns that most retail investors experience. Vijay Kedia, the well‑known market‑commentator and financial‑wellness advocate, dives deep into the reasons behind this phenomenon and offers practical solutions for investors who want to bridge the gap.

1. Index construction vs. portfolio construction

The Nifty 50 and Sensex are cap‑weighted indices, meaning that the performance of a handful of large‑cap, high‑liquidity companies dominates the final index number. A portfolio that is not aligned with this weightage will naturally diverge. Kedia points out that many retail portfolios either over‑expose to small‑caps or carry too much debt or alternative assets, causing them to lag behind the indices.

“If you have a large number of mid‑cap or small‑cap stocks, you may see a different risk‑return profile than what the Nifty reflects. The index is simply a weighted average of its constituents.”

2. Lack of diversification

The indices contain 50 or 30 stocks, all of which are highly liquid and widely held. In contrast, an investor who has just a handful of individual stocks – or a portfolio concentrated in a single sector – is much more susceptible to idiosyncratic shocks. Kedia stresses the importance of true diversification across sectors, geographies, and asset classes. He encourages readers to use a mix of index funds, sector ETFs, and thematic funds to capture broad market exposure while limiting concentration risk.

3. Inadequate rebalancing

Even a well‑diversified portfolio can drift away from its target allocation if it isn’t rebalanced regularly. “A portfolio that is left to run on a ‘buy‑and‑hold’ strategy without periodic rebalancing will slowly skew towards over‑weighted positions,” Kedia explains. Rebalancing forces the investor to sell assets that have risen above their target weight and buy those that have fallen below it – a disciplined way to keep risk in check and to lock in gains.

4. Fees and commissions

High transaction costs and fund management fees can erode returns over time. The article notes that many retail investors pay significant brokerage fees for each trade, and actively managed funds often come with higher expense ratios than passive index funds. Kedia recommends scrutinizing every cost component and preferring low‑cost index ETFs or mutual funds whenever possible.

5. Tax drag

The Indian tax regime can have a substantial impact on after‑tax returns, especially for short‑term holdings. “Short‑term capital gains (STCG) are taxed at 15% for equity securities, while long‑term capital gains (LTCG) are capped at 10% beyond a ₹1 lakh threshold,” Kedia writes. He advises that investors plan their exit strategy and hold for at least a year to benefit from the lower LTCG tax rate. Moreover, Kedia highlights the utility of tax‑efficient funds and the importance of tracking capital gains on a portfolio‑wide basis.

6. Psychological biases

Human psychology is a notorious drag on portfolio performance. The article references common biases such as herd behaviour, loss aversion, and recency bias. Kedia cites his own experience: “Even the best‑designed portfolio can underperform if the investor reacts emotionally to market noise.” He advises maintaining a long‑term perspective, sticking to a pre‑defined investment plan, and resisting the urge to trade on short‑term market swings.

7. Market structure and liquidity

Finally, Kedia points out that indices are based on a universe of high‑liquidity stocks that trade in large volumes. Small‑cap stocks, by contrast, can suffer from illiquidity and wider bid‑ask spreads, making them harder to exit without a price impact. A portfolio concentrated in such securities can underperform simply because it’s harder to capture the gains reflected in the index.

Kedia’s Practical Blueprint for Aligning Portfolio Returns with Market Indices

1. Core‑Satellite Approach
   Core – Invest 60‑70 % of the portfolio in a low‑cost, broad‑market index fund that tracks the Nifty or Sensex.
   Satellite – Use 30‑40 % for specialized themes, small‑caps, or international exposure to capture outperformance while limiting volatility.

2. Regular Systematic Investing
   Automate monthly or quarterly contributions (SIP or dollar‑cost averaging). This ensures a disciplined accumulation irrespective of market timing.

3. Rebalance Quarterly
   Re‑assess the portfolio’s asset allocation each quarter. Sell the overweight asset classes and buy the underweighted ones.

4. Tax‑Aware Portfolio Construction
   Keep an eye on the holding period. Aim to stay above the one‑year mark to enjoy the lower LTCG rate. Use tax‑efficient funds where possible.

5. Minimise Transaction Costs
   Opt for discount brokers and index ETFs with low expense ratios. Use the “Nifty Next 50” or “Sensex” ETFs that replicate the index performance with minimal cost.

6. Stay Informed but Not Over‑reactive
   Follow market news and research, but don’t let short‑term volatility dictate your long‑term strategy.

7. Use Technology Tools
   Leverage portfolio tracking apps and robo‑advisors that automatically rebalance and tax‑loss harvest for you.

Additional Reading Linked Within the Article

Kedia’s piece interlinks several of his prior articles to offer deeper context:

• “Why do most people lose money in the stock market?” – A dive into behavioural pitfalls and how to guard against them.
• “Investing 101: A Beginner’s Guide” – A primer on building a diversified portfolio and understanding asset classes.
• “Tax Optimization in Indian Markets” – Practical tips for reducing tax drag on equity portfolios.
• “Understanding the Nifty and Sensex” – An explainer on index mechanics and their implications for investors.

These linked resources provide a holistic view of the topic, giving readers a toolkit for both conceptual understanding and actionable steps.

Bottom Line

The story that the Nifty and Sensex are reaching record highs while most retail portfolios lag behind is not merely a headline; it’s a diagnostic indicator of common investment missteps. Vijay Kedia’s article dissects this disconnect across structural, behavioural, and operational dimensions, offering a clear roadmap for investors to align their portfolios more closely with market indices while safeguarding against costs, taxes, and psychological biases.

By adopting a disciplined, tax‑aware, and cost‑efficient investment approach – anchored around a low‑cost core and supplemented with thematic satellites – investors can expect their portfolios to reflect the broad market’s upward trajectory, thereby translating headline highs into tangible, after‑tax gains.