Stock market today: Sensex, Nifty crash 1% even as mid, small-caps surge. What's behind the divergence? Experts decode

Stock market today: The Indian stock market displayed a mixed trend in intraday trade on Tuesday, May 13. While the benchmark indices—the Sensex and the Nifty 50—fell by 1 per cent, mid- and small-cap indices gained by up to 1 per cent.

The Sensex ended 1,282 points, or 1.55 per cent, down at 81,148.22, while the Nifty 50 settled at 24,578.35, down 346 points, or 1.39 per cent.

On the other hand, the BSE Midcap and Smallcap indices ended 0.17 per cent and 0.99 per cent higher, respectively.

Why are benchmarks, broader market moving in opposite directions?

A key reason behind the broader market's outperformance could be the continued inflow of retail money, while institutional investors are booking profits in large-cap stocks amid a lack of fresh triggers.

"The recent divergence in market trends could largely be attributed to retail participation. In the previous session, the sharp rally was primarily driven by short covering, though retail investors and high-net-worth individuals (HNIs) likely added to the momentum," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.

Vijayakumar underscored that when the market surges, like it did on Monday, retail participants often rush to join the rally. Conversely, they tend to panic during corrections.

"In April, the SIP stoppage ratio spiked, indicating that a significant number of retail investors paused their systematic investment plans amid heightened market volatility. Many retail investors who entered the markets after the COVID-19 crash still lack a clear understanding of reasonable market valuations, which may be influencing their short-term investment behaviour," said Vijayakumar.

Experts underscore that the optimism of retail investors could be based on the India-Pakistan development and the US-China trade deal. While the India-Pakistan ceasefire is a positive trigger, a deal between the US and China may be negative for the domestic market.

“The domestic market may stay resilient in the very short term, but a major issue is the trade deal in the US and China. This could again trigger a sell India, buy China' trend,” said Vijayakumar.

G Chokkalingam, the founder and head of research at Equinomics Research Private Limited, has similar views.

"Retail money could be driving the rally in mid- and small-cap segments following the India-Pakistan ceasefire and the US-China trade deal. However, the US-China agreement may prove negative for Indian markets, as it could prompt foreign portfolio investors (FPIs) to redirect funds toward China, reducing inflows into Indian equities," said Chokkalingam.

What will move the market?

The key triggers for the market will be earnings growth and macroeconomic prints.

"Earnings growth is likely to be the key trigger for markets going forward. Q1FY26 results are expected to be strong, supported by improved sentiment across the economy and the impact of fiscal and monetary stimulus measures. Robust corporate earnings could provide much-needed support to the markets.

Rate cuts will also be a major factor that will influence market sentiment. Experts believe that with inflation under control, the Monetary Policy Committee (MPC) may have room to cut interest rates at least twice this year.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.