Indian equity markets saw sharp underperformance across select sectoral and thematic indices in January, with realty, tourism-linked stocks and high-beta segments such as internet and microcaps emerging as the biggest laggards, hinting at a shift in investor risk appetite.
NSE index data show the Nifty Realty index declined over 14 per cent in the past month, the steepest among sectoral gauges. The Nifty India Tourism index fell nearly 12 per cent, while growth-oriented themes such as Nifty India Internet and SME Emerge slipped over 11 per cent each. The Nifty Microcap 250 dropped more than 9 per cent, sharply underperforming the broader market, even as the Nifty 50 was down about 4 per cent over the same period.
The divergence points to narrowing market breadth, with investors booking profits in sectors that had delivered outsized gains over the past two years and trimming exposure to higher-risk segments amid volatile foreign flows and muted earnings momentum.
Realty bears the brunt
The real estate sector saw the sharpest correction in January, as concerns over demand visibility, execution risks and stretched valuations triggered sustained selling pressure along with a cyclical consolidation following past rallies.
The correction has been a result of valuation de-rating, with higher risk premiums being assigned amid muted earnings momentum and macro uncertainty, while sustained FII outflows and limited domestic participation deepened the selloff, Fenil Brahmbhatt, Analyst – Realty, Choice Institutional Equities said.
Anil R, Research Analyst, Geojit Investments said, “The sector is moving into a stabilisation phase rather than showing structural weakness. New project launches slowed in Q3, while demand shifted toward premium and luxury homes, leading to lower unit volumes but higher overall sales value,” he said, adding that the sector continues to attract capital and investor interest over the long term.
The real estate and tourism stocks had delivered outsized returns post-Covid and are now witnessing cyclical price consolidation rather than structural stress, said Kranti Bathini, equity strategist at WealthMills Securities. “Post-Covid, realty and tourism stocks had a dream rally. What we are seeing over the last six months is largely consolidation. There is no structural concern at this point, it is more of a temporary and cyclical correction,” he said.
Global risks
Analysts said internet companies and small-cap pockets bore heavy selling pressure as global risk aversion rose.
“The decline in internet companies is driven by global caution toward growth and technology stocks, along with concerns around tariffs and trade tensions, rather than any deterioration in business fundamentals,” Anil said.
Across these segments, elevated valuations meant part of the correction reflected a healthy reset after a strong rally.
The broader pressure was due to aggressive foreign selling and softer earnings momentum. “FPIs sold nearly ₹40,000 crore in January, which has impacted sentiment in the medium term. Muted earnings have also weighed on these sectors,” Bathini said.
Outlook
Market participants said the January underperformance shows a phase of consolidation for Indian equities, where leadership is narrowing and stock selection will be crucial.
While some analysts see the correction as a necessary cooling-off after a sharp rally, others caution that continued foreign outflows and global volatility could keep pressure on cyclical and high-beta sectors in the near term.