Explained: 13 reasons why the Nifty could not deliver more in last 5 years

Over the past five years, the Nifty 50 benchmark index faltered due to a handful of key stocks that significantly dragged its performance. These 13 stocks, constituting 33.7% of the index, delivered an annualized return of negative 0.8% from September 2021 to August 2026, according to a study by 360 One Wealth. In contrast, the Nifty 50 returned 7.1% annually over the same period, but excluding these underperformers, the return would have been 11%, as noted by Varuk Sikka, executive director of the firm.

The biggest contributors to this drag were HDFC Bank, Reliance Industries, Infosys, Kotak Mahindra Bank, and TCS, accounting for approximately 27% of the index. IT services firms like Infosys, TCS, HCL Technologies, Tech Mahindra, and Wipro, which make up 8.5% of the Nifty, faced challenges such as AI's pressure on the billable-hour model.

HDFC Bank experienced margin pressure following its merger, while regulatory changes negatively impacted HDFC Life. Consumer companies like Hindustan Unilever and Asian Paints suffered from rising input costs and increased competition.

The underperformance of these heavyweight stocks also helped active mutual funds outperform the index, with these funds returning 8.32% annually compared to 7.1% for the Nifty 50. Large-cap funds averaged 11.41%, flexi-cap funds 12.23%, and multi-cap funds 16.30% during the same period. Typically, active schemes had 15-22% of their portfolios invested in the 13 laggards, while the index was more heavily weighted in these stocks.

This underweight alone accounted for roughly 1.5-2 percentage points of their outperformance, as revealed by the study.