Domestic mutual funds in India have significantly reduced their exposure to Nifty 50 companies, reaching a 21-year low of 49.4% in the September 2026 quarter. This marks the first time in more than two decades that their allocation to India's benchmark index has fallen below 50%, according to the National Stock Exchange's (NSE) India Ownership Tracker report.
The decline represents a two-percentage-point drop from 51.4% recorded in the June quarter and is a substantial 13.5 percentage points below its December 2019 peak of 63%. The trend underscores a broader move among institutional investors to diversify their portfolios beyond the traditional blue-chip stocks that comprise the Nifty 50.
Institutional Investors Broaden Horizons
The shift is not exclusive to domestic mutual funds. Foreign portfolio investors (FPIs) also trimmed their Nifty 50 exposure, which now stands at a record low of 56.2%, down 1.3 percentage points. Collectively, institutional investors reduced their Nifty 50 allocation for the third consecutive quarter, settling at a record low of 54.6%.
The NSE noted that this sustained decline across various investor categories reflects a broadening of institutional portfolios beyond India’s largest listed companies. While banks, financial institutions, and insurance companies still maintain the highest concentration in benchmark stocks, their allocation also saw a decline to a record low of 62.4%.
Beyond the Nifty 50: The Rise of Mid-Caps
Despite the reduced Nifty 50 allocation, mutual funds are not necessarily abandoning large companies altogether. Their exposure to the largest 10% of NSE-listed companies by market capitalization actually increased by 4.2 percentage points to 87.6% during the quarter. This growth was primarily driven by higher investments in companies outside the Nifty 50, particularly within the mid-cap segment of the broader market.
FPIs and individual investors mirrored this trend, increasing their allocations to this wider group of large-cap and mid-cap companies by 2.8 and 4.1 percentage points, respectively. This suggests a strategic reallocation rather than a complete withdrawal from larger entities, favoring those with strong growth potential outside the top 50.
Outperformance Drives Diversification
Performance disparities across market segments provide a clear rationale for this diversification trend. Over the three years ending September 2026, the Nifty 50 delivered annualised returns of 4.8%. In stark contrast, the Nifty Midcap 150 generated 13% and the Nifty Smallcap 250 achieved 13.3% during the same period.
This significant outperformance by mid-cap and small-cap stocks has incentivized investors to explore opportunities beyond the most established companies. Despite this, institutional ownership historically remained concentrated in benchmark companies, which represented only 39.5% of NSE-listed companies' aggregate market capitalization.
Portfolio Concentration at Multi-Year Lows
Further reflecting the diversification, the NSE's portfolio concentration index, which measures investment density in fewer stocks, saw notable declines. For domestic mutual funds, the index dropped to 119, its lowest level in 35 quarters. The overall institutional concentration index also fell sharply from 145 in June to a record low of 132 in September, reinforcing the industry-wide shift towards more diversified equity portfolios.
“The sustained decline across investor categories reflects the broadening of institutional portfolios beyond India’s largest listed companies,” the NSE stated in its report.
This strategic reallocation highlights a maturing Indian equity market where investors are increasingly seeking value and growth opportunities across a wider spectrum of companies, moving beyond the traditional reliance on Nifty 50 constituents.