Domestic mutual funds’ allocation to Nifty 50 stocks fell below 50 per cent for the first time in 21 years in the September quarter, even as they increased exposure to other relatively large and mid-cap companies amid stronger returns from the wider market.
The 50 benchmark stocks accounted for 49.4 per cent of mutual funds’ holdings in NSE-listed equities, down from 51.4 per cent in June and a peak of 63 per cent in December 2019, according to the National Stock Exchange’s (NSE) India Ownership Tracker. The allocation had recovered during 2025 as large-cap stocks held up relatively better, before falling again this year.
Higher exposure
Yet mutual funds increased their exposure to the largest 10 per cent of NSE-listed companies by market capitalisation by 4.2 percentage points to 87.6 per cent. Within this group, their allocation to companies outside the Nifty 50 rose by 6.1 percentage points, largely reflecting higher exposure to mid-cap companies, NSE said.
Their combined allocation to the next two market-cap groups, comprising mainly small- and micro-cap stocks, declined by 3.1 percentage points to 11.7 per cent.
Atul Singhal, Founder and CEO of Scripbox, said foreign investors have pulled about $65 billion out over two years, mostly from large caps, while $3 billion a month of SIP money is going into funds that can invest beyond the index. “The money going to large companies outside the Nifty 50 is following earnings. A lot of today’s growth sits just below the index, and several large recent listings joined the top 10 per cent before they could join the Nifty 50,” Singhal said.
The Nifty 50 delivered annualised returns of 4.8 per cent over the three years ended September, compared with 13 per cent for the Nifty Midcap 150 and 13.3 per cent for the Nifty Smallcap 250. ICRA Analytics’ September screener showed average annualised three-year returns of 14.22 per cent for mid-cap funds and 14.49 per cent for small-cap schemes, against 8.05 per cent for large-cap funds.
High-growth hunt
According to the Association of Mutual Funds in India’s latest data, small-cap funds attracted ₹9,039 crore and mid-cap schemes ₹7,835 crore in September, together accounting for about 44 per cent of the ₹38,307 crore net inflows into equity schemes. Large-cap funds received ₹859 crore.
ICRA attributed the sustained interest in these categories to regular investing and expectations of long-term growth, while cautioning that elevated valuations could make future returns more dependent on corporate earnings.
Even with the falling portfolio weight the ownership of mutual funds in Nifty 50 companies’ market capitalisation has risen to a record 14.8 per cent in September, marking the 13th consecutive quarterly increase. Overall institutional allocation to the index fell to a record low of 54.6 per cent.
Overall institutional allocation to Nifty 50 stocks, meanwhile, fell to a record low of 54.6 per cent, with foreign portfolio investors’ allocation declining to 56.2 per cent. Fund managers expect the broadening to continue with a focus on earnings and valuations rather than index allocations.
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Published on November 10, 2026
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