The top 10 heavy weighted stocks of Nifty 50 index have not changed much in the past one and half years, but what has changed is their correlation with the rest of the 40 names, notes Edelweiss Securities in a report.

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Since January 2018, the top 10 market cap companies have gained 21.4 percent whereas the rest 40 companies' market cap has fallen by 14.6 percent. Nifty50 components have largely moved in sync till the first half of CY18 but in the last one year, a notable change has been seen between the top 10 versus the rest 40 performance-wise, the brokerage said in the report.

According to the report, an index created by the rest 40 currently would currently stand at 9,000 levels as compared to the 11,000 level of the Nifty50 index.

However, the deviation is much wider with the Nifty Midcap 100 and Nifty Smallcap 100 indices. Since January 2018 till date, Nifty50 is still in the green with a 6 percent return but the midcap is down by 26 percent, while, smallcap index lost 39 percent.

The underperformance of mid- and small-cap started post the announcement of the introduction of long term capital gain tax in the February 2018 budget which has not stabilised till now.

"The largecaps, however, were holding till the announcement of the introduction of super-rich tax in the July 2019 budget after which the largecaps, too, have witnessed sell-off. The fall has been majorly driven by the FPI outflows with FPIs selling $2.5 billion in the secondary market in July," the report added.

This year alone, Nifty Midcap and Nifty Smallcap indices have fallen 11 percent and 14 percent, respectively as compared to a 1 percent gain in Nifty50.

Going ahead, analysts expect domestic sentiments to continue having a negative bearing on the Indian markets. Further, muted corporate earnings and challenging outlook provided by the corporates are also likely to weigh on stocks.

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