India’s Stock Market Goes Wide: Mid- & Small-Caps Break the Monopoly as Market Concentration Hits Multi-Year Lows

Market concentration across the National Stock Exchange (NSE) has slipped to multi-year lows, driven by a powerful shift in liquidity and ownership away from a handful of large-caps and toward a much broader universe of mid- and small-cap stocks. With both retail and institutional investors widening their reach, India’s equity landscape is becoming more democratic, more diverse, and structurally deeper than it has been in years.

For a long stretch, India’s markets leaned heavily on a few dominant giants. That era is fading. Fresh trading activity and institutional capital are now spreading across the widest range of stocks seen in nearly a decade. Concentration metrics such as the Herfindahl-Hirschman Index (HHI) have dropped sharply from their pandemic spikes, signaling a decisive broadening in how attention and capital flow through the market.

The market-cap-weighted HHI for the NSE, which hit an 11-year high of 173 in March 2020 as investors flocked to safe, liquid large-caps, has since fallen to 80 by October 2025—its lowest point since March 2018. This sharp decline reflects a healthier, more even spread of liquidity and ownership across the listed universe.

HHI, which aggregates squared market shares to gauge dominance, typically ranges from near zero to 10,000. While equity markets rarely see extreme readings, directional moves are highly meaningful. Lower HHIs signify dispersed liquidity and a more competitive market, while elevated values point to clustering around a few heavyweights. Even modest shifts can reshape how rallies behave and where risks concentrate.

Across segments, the market’s broadening is clear. The Nifty 50 remains the most concentrated pocket, with an HHI of 363—slightly higher than last month’s 354, but far below the peak of 476 in March 2009. The Nifty Next 50 sits at 252. Beyond the largest caps, concentration plunges: mid-caps are at 77, and both small- and micro-caps at 47, all near multi-year lows. This dispersion reflects a swelling listed universe, persistent outperformance in the mid- and small-cap segments, growing retail participation, SIP strength, and rising passive AUM.

Experts say the data marks a turning point. With large-cap HHIs still elevated but smaller segments sitting in the 47–77 band, the market is no longer top-heavy. Rallies now rotate more frequently, and the risk of a correction driven by a few mega-caps has diminished. A low-HHI environment expands opportunities for active managers, though it also introduces wider dispersion in returns—a trade-off for a healthier, more durable market structure.

Turnover patterns reinforce this shift. Cash-market turnover HHI fell to 43.6 in October 2025 from 51.8 a year earlier, while market-cap concentration slipped from 79.3 to 78. During the pandemic, these metrics surged dramatically—turnover HHI hit 204.5 in July 2020, while market-cap HHI peaked at 196.7 in October 2020. Since then, both have steadily normalized in step with broader participation.

Institutional portfolios show the same trend. In the September 2025 quarter, the institutional ownership HHI for NSE-listed companies declined to 186—its second straight quarterly drop. Banks, insurers and financial institutions saw their HHI fall to 203, a near two-decade low, compared with far higher readings in prior years. Domestic mutual funds also diversified meaningfully, with their HHI dropping to 145, well below the 188 level seen in September 2020. Robust SIP inflows and the expanding passive universe continue to push MFs into a wider opportunity set.

Sector-level concentration has eased across most areas between September 2020 and September 2025. Communication services, IT, consumer staples, financials, and industrials all recorded declines, while the energy sector saw concentration moderate but remain elevated due to a limited number of large investables. Materials was the lone segment with a slight uptick but stayed within competitive ranges. Among domestic MFs, communication services and energy remain the most concentrated pockets.

Foreign portfolio investors—historically the most top-heavy allocators—have also expanded their footprint. The FPI HHI dropped to 258 in September 2025 from the peak of 411 in September 2020. The number of companies with FPI ownership has risen for five consecutive quarters, reaching 2,046 in September 2025 versus roughly 1,300 just four years earlier. Sectoral HHIs for FPIs have declined across consumer discretionary, consumer staples, industrials, IT, and materials. Energy remains concentrated, and communication services has risen sharply due to the dominance of major players—but these stand out as exceptions in an otherwise broadening trend.

Retail investors remain the most diversified group of all. Their portfolio HHI plunged from 174 in September 2020 to just 63 in September 2025—the lowest among all investor categories. Retail flows naturally tilt toward mid-, small- and micro-caps, bypassing liquidity constraints. Sectoral HHIs for retail investors also reflect this broad dispersion, with sharp declines across energy, consumer staples, IT, industrials, and materials. Utilities saw a mild rise, while communication services stands higher than competitive levels but well below pandemic-era peaks.

Taken together, India’s market is experiencing a structural democratization of liquidity, participation, and ownership. The era of concentration-led rallies is giving way to one defined by breadth—and for investors across segments, that shift is reshaping both opportunities and risks in the years ahead.