To examine the effect of the diversification benefit of cryptocurrencies for investors investing in equity indices of Indian sectors. The sample includes daily data for six National Stock Exchange (NSE) sectoral indices (NIFTY Bank, NIFTY Auto, NIFTY FMCG, NIFTY IT, NIFTY Metal, NIFTY Pharma) and three major cryptocurrencies (Bitcoin, Ethereum, Solana) between 2021 and 2025. The daily logarithmic returns are used to analyse the return characteristics, risk dynamics, and portfolio performance. Before portfolio optimisation, descriptive statistics, and correlation analysis, the Augmented Dickey–Fuller (ADF) unit root test and the ARCH-LM test are carried out. The Mean- Variance and Conditional Value-at-Risk (CVaR) optimisation concepts are employed in portfolio allocation, and their riskadjusted performance is measured by the Sharpe ratio, the Sortino ratio, the Value-at-Risk (VaR), and the CVaR. The findings show that cryptocurrencies have significantly higher returns and volatilities than the sectoral indices based in India. The correlation coefficients between cryptocurrencies and sectoral indices are relatively low, suggesting that there may be diversification opportunities. Optimal portfolio optimisation results indicate that cryptocurrencies are optimally allocated with a positive but limited weight. Inclusion of cryptocurrencies improves portfolio returns, but higher downside risk and drawdowns are seen in an equalweight sectoral-plus-cryptocurrencies portfolio compared with a sectoral-only portfolio. According to the robustness analysis, risk-adjusted performance has markedly improved over the past three years (2023–25) compared with the previous two years (2021–22). Overall, the results indicate that cryptocurrencies have the potential to enhance portfolio diversification with suitable selection under specific market conditions, depending on investor goals.