Mutual funds cut Nifty 50 exposure to 21-year low of 49.4% as investments shift beyond blue-chip stocks: Report

Domestic mutual funds reduced their exposure to Nifty 50 companies to a 21-year low in the September 2026 quarter, with their allocation falling below 50 per cent for the first time in more than two decades. The decline reflects a growing preference among institutional investors to diversify portfolios beyond India's largest benchmark stocks.

According to the National Stock Exchange's (NSE) India Ownership Tracker report, Nifty 50 stocks accounted for 49.4 per cent of mutual funds' holdings in NSE-listed equities, down two percentage points from 51.4 per cent in the June quarter. The allocation was also 13.5 percentage points below its December 2019 peak of 63 per cent.

Institutional investors widen their portfolios

The trend extended beyond domestic mutual funds. Institutional investors collectively reduced their Nifty 50 allocation for the third consecutive quarter, bringing it to a record low of 54.6 per cent.

This marked a decline of 1.4 percentage points during the September quarter and 6.3 percentage points since December 2025.

“The sustained decline across investor categories reflects the broadening of institutional portfolios beyond India’s largest listed companies,” NSE said.

Foreign portfolio investors (FPIs) also trimmed their exposure to Nifty 50 companies by 1.3 percentage points to a record low of 56.2 per cent.

Banks, financial institutions and insurance companies continued to maintain the highest concentration in benchmark stocks, although their allocation declined to a record low of 62.4 per cent.

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Are mutual funds abandoning large companies?

Despite the declining Nifty 50 allocation, mutual funds are not necessarily shifting away from large companies.

Their exposure to the largest 10 per cent of NSE-listed companies by market capitalisation actually increased by 4.2 percentage points to 87.6 per cent during the quarter.

NSE attributed this increase primarily to higher investments in companies outside the Nifty 50, particularly mid-cap stocks within the broader market-capitalisation group.

FPIs and individual investors similarly increased their allocations to this group by 2.8 and 4.1 percentage points, respectively.

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Mid-cap and small-cap stocks outperform

Performance differences across market segments provide additional context for the diversification trend.

Over the three years ended September 2026, the Nifty 50 generated annualised returns of 4.8 per cent, significantly below the Nifty Midcap 150's 13 per cent and Nifty Smallcap 250's 13.3 per cent.

Nevertheless, institutional ownership remained concentrated in benchmark companies, which represented just 39.5 per cent of NSE-listed companies' aggregate market capitalisation.

Portfolio concentration hits multi-year lows

The diversification trend was further reflected in NSE's portfolio concentration index, which measures how heavily investments are concentrated in relatively few stocks.

For domestic mutual funds, the index declined to 119, its lowest level in 35 quarters.

The overall institutional concentration index also dropped sharply, from 145 in June to a record low of 132 in September, reinforcing the broader shift towards diversified equity portfolios.

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