Rotation from large-caps to mid- and small-caps speeds up in June quarter: NSE report

After piling into large-cap companies earlier this year, both institutions and retail investors pulled back from the Nifty 50 in the June quarter and rotated towards mid- and small-cap shares, according to the NSE’s latest Market Pulse report. Institutional holdings in Nifty 50 companies fell by 1.5 percentage points to 60.3 per cent of portfolios as of June 2025, while that of individuals dropped by 1.9 points during the quarter to 36.4 per cent. The reduction was broad-based: banks, financial institutions and insurers cut their exposure to 65.7 per cent, the lowest on record, while foreign portfolio investors trimmed their allocation to 62.8 per cent. Domestic mutual funds also reduced large-cap holdings, lowering their share by 1.6 points to 54.4 per cent — a sharp pullback from pre-pandemic peak of 63 percent. Five-year trend This continues a longer trend since March 2020: individuals have slashed their large-cap allocation by nearly 18 percentage points, a sharper decline than the index’s own market share. “Nifty 50’s institutional share remains 12.1 points below its pre-pandemic level of 72.4 per cent in December 2019, reflecting a structural reallocation towards mid- and small-cap companies. This shift has been driven by both sustained flows into mid- and small-cap funds and the relative outperformance of these segments in recent years,” the report said. In the June quarter, the Nifty 50 rose just 1.8 per cent, compared with gains of 7.5 per cent in the Nifty Midcap 150 and 11.6 per cent in the Nifty Smallcap 250. By July, the Nifty 50’s contribution to the NSE’s overall market capitalisation had dropped to 43.5 percent, its lowest in seven months. Over the last five years, mid- and small-cap indices have compounded at nearly 30 per cent annually, outpacing the Nifty 50’s 17.5 per cent. Decile allocations This shift is further evident in holdings by decile: institutional investors’ exposure to the top decile or 10 per cent of companies by market capitalisation rose marginally by 10 points sequentially — with DMF’s share down to 82.5 per cent and FPI’s holding steady at 89.1 per cent. Individual investors’ exposure to the same group declined by 1.1 points to 64.8 per cent, edging closer to the 25-year low of 63.2 per cent seen in December 2024, due to a growing preference for relatively smaller stocks. By contrast, allocations to companies in the lower half of the market have been rising steadily, showing a gradual broadening of investor interest beyond the largest names. Published on August 29, 2025