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Analyzing Ownership Concentration in Indian Markets: A Shifting Landscape

Published 16-06-2024, 07:29 pm

Institutional investor behavior in the Indian equity market underwent significant shifts in the March quarter of FY24, reflecting evolving preferences and market dynamics. Traditionally concentrated in Nifty50 companies, institutional allocations saw a notable decline for the fourth consecutive quarter, marking a 16-year low with these blue-chip stocks now comprising only 62% of institutional portfolios.

This shift can be attributed to increased inflows into mid- and small-cap funds, driven by their strong performance relative to large-cap stocks. While the Nifty 50 Index returned 28.6% in FY24, the Nifty Midcap 50 and Nifty Smallcap 50 indices surged by 59.8% and 71.6% respectively, underscoring their attractiveness to investors seeking higher returns.

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Correspondingly, the market capitalization share of Nifty 50 companies in the overall NSE-listed universe also declined sharply by 6.8 percentage points to 46.9% in FY24, reaching levels not seen in over two decades. Financial institutions and insurance companies, historically the most concentrated in Nifty 50 stocks, saw their allocation decrease to 67.4%, the lowest in recent years.

Foreign Portfolio Investors (FPIs) similarly reduced their exposure to Nifty 50 companies by 8.2 percentage points to 63.8%, reflecting a strategic reallocation towards broader market opportunities. Domestic mutual funds (DMFs), however, slightly increased their allocation to Nifty 50 stocks in the March quarter, although their overall annual allocation declined by 5.9 percentage points to 55.2%.

Individual Investors: Shifting Preferences

Individual investors, a crucial segment in the market, also witnessed a pronounced shift away from Nifty 50 companies. Their direct investment portfolio saw the share of these blue-chip stocks plummet to 39.8%, down 8 percentage points in FY24 and marking the first time in six years that their allocation fell below 40%. This divergence from broader market trends highlights a growing affinity towards mid and smaller companies among retail investors.

The declining dominance of Nifty 50 companies in institutional and individual portfolios reflects a broader trend towards diversification and risk management strategies in the Indian equity market. As investors seek higher returns and capitalize on sector-specific opportunities, understanding these shifts in ownership concentration becomes crucial for navigating the evolving investment landscape effectively.

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