India's equity markets are undergoing a significant transformation, moving away from their traditional reliance on a handful of large-cap giants. Trading activity and institutional capital are now spreading across the broadest set of companies witnessed in nearly a decade, signaling a structural shift in market dynamics.
The Broadening Market Landscape
Key concentration metrics, such as the Herfindahl-Hirschman Index (HHI) for the National Stock Exchange (NSE), have fallen sharply from their pandemic peaks. The market-cap-based HHI peaked at an 11-year high of 173 in March 2020, a period when pandemic uncertainty drove money into the safest, most liquid large-cap stocks. By October 2025, this figure had eased to 80, its lowest level since March 2018. This decline reflects a substantial broadening of ownership and liquidity across the market.
The HHI, which measures market concentration, is calculated by squaring the market share of each entity and summing the results. A lower score indicates a more dispersed and competitive market. While absolute values in equity markets remain below regulatory thresholds for high concentration, the directional decline is a powerful indicator of a healthier, more diversified trading environment.
Dispersion Across Market Segments
This trend is vividly clear when examining different market indices. The Nifty 50, while still the most concentrated cluster, has an HHI of 363, well below its peak of 476 from March 2009. The dispersion becomes even more pronounced beyond large-caps.
Mid-cap, small-cap, and micro-cap indices have HHIs sitting near multi-year lows at 77, 47, and 47, respectively. This widespread activity is fueled by a larger listed universe, the sustained outperformance of smaller companies, and a surge in domestic participation through retail flows, systematic investment plans (SIPs), and passive fund investments.
Experts highlight the significance of this shift. Charmi Shah, Business Head at Wealth1 – PMS & AIF Investments, stated, "When large-cap HHIs remain elevated but mid-, small- and micro-caps sit in the 47-77 band, it shows that participation is no longer top-heavy. Such dispersion changes the behaviour of rallies. The market is less exposed to a correction in a handful of heavyweights."
Institutional and Retail Participation Widens
The broadening is not confined to indices alone. Institutional ownership patterns are also evolving. In the September 2025 quarter, the HHI for institutional portfolios across NSE-listed companies fell to 186, marking its second consecutive quarterly decline.
Banks, insurers, and financial institutions showed the sharpest dispersion, with their HHI sliding to 203—a near 20-year low. Domestic mutual funds followed a similar path, with their HHI dropping to 145, far below the 188 recorded in September 2020, driven by record SIP flows.
Foreign portfolio investors (FPIs), traditionally the most concentrated category, have also expanded their footprint. The FPI HHI fell sharply to 258 in September 2025 from a peak of 411 in September 2020. The number of companies with FPI holdings has risen for five consecutive quarters, reaching 2,046 in September 2025.
However, retail investors remain the most diversified group. Their portfolio HHI dropped to 63 in September 2025, the lowest among all investor categories, as their allocations are naturally spread across mid-, small-, and micro-caps without the liquidity constraints faced by large institutions.
Harshal Dasani, Business Head at INVasset PMS, commented, "India’s market microstructure is undergoing a notable shift. This phase is different because of sustained domestic demand—record SIP inflows and a demat base of over 210 million accounts—which is spreading capital more evenly across segments."
This widespread dispersion of liquidity and ownership marks a new, more democratic phase for India's stock market, reducing systemic risk and creating a more robust foundation for future growth.
