India's equity market is experiencing a fundamental shift as the BSE 500 Index's dominance has fallen to a record low of 85% of total BSE market capitalisation, down from approximately 96% just a few years ago. According to data compiled by Bloomberg, this decline represents the broadening of India's equity market beyond its largest companies, with a growing share of market value now being captured by stocks outside the BSE 500. The BSE 500, which spans 20 major industries and represents a broad cross-section of the Indian economy, has also underperformed significantly, declining about 9% from its September 2024 peak and falling 5.6% so far this year. This underperformance contrasts sharply with the BSE SmallCap Index, which has gained 13.3% this year, highlighting the divergence in market leadership.
According to Helios Capital CEO Dinshaw Irani, large-cap stocks may appear inexpensive on headline valuations, but the lack of earnings growth is limiting their appeal. As reported by NDTV Profit, Irani explained that the issue lies not with the broader economy, which he described as growing at a decent pace, but with the composition of the large-cap universe. IT services, FMCG and commodities are facing growth challenges, while banks have seen some improvement but remain constrained by structural issues. Irani posed the fundamental question: "If there is no growth, what valuation can you justify?" This earnings gap is influencing foreign investor behavior, as reported by NDTV Profit. Recent analysis from JPMorgan supports this view, with Rajiv Batra, Head of Asia and Co-Head of Global Emerging Markets Equity Strategy at JPMorgan, noting that large-cap earnings are growing at around 8-9%, which is lower than the growth being seen in the mid- and small-cap segments.
The steady expansion of India's listed universe through new listings has significantly contributed to the decline in BSE 500 dominance. Around 230 companies, including mainboard and SME listings, have debuted in 2026 so far, collectively commanding about ₹12.5 lakh crore in market capitalisation. The recent listing of the National Stock Exchange has further expanded the market, with NSE commanding a market value of about ₹4.4 lakh crore. As of Friday's close, companies listed on the BSE had a combined market capitalisation of about ₹482 lakh crore, compared with roughly ₹412 lakh crore for the BSE 500. This rapid expansion of the listed universe, coupled with the underperformance of large-cap stocks, has fundamentally altered the market landscape and reduced the dominance of India's top 500 companies.
As reported by NDTV Profit, foreign investors are increasingly looking beyond the biggest stocks for growth rather than simply focusing on valuations. The share of the top 10 FPI holdings fell from around 41% of their India exposure in March 2022 to about 21% by March 2026, while the number of stocks in which FPIs held more than 1% increased from roughly 900 to more than 1,300. This trend shows foreign investors are diversifying beyond the top 10 stocks amid earnings concerns, moving away from concentration in large-cap stocks toward broader market participation. The divergence in performance between large-caps and mid/small-caps has reinforced this diversification strategy, with investor expectations of stronger growth from the smaller segments driving capital allocation decisions.
According to CNBC TV18, Helios Mutual Fund, which manages assets worth nearly $1.16 billion, continues to favour businesses with strong structural growth drivers, particularly new-age companies and precision engineering firms. As reported by CNBC TV18, Irani explained that "We keep adding to the positions where we have heavy conviction, which is obviously our new-age companies, where we are totally very clear that there's a structural growth story playing out, even though they have exponential valuations, but the exponential growth justifies that valuation." The fund has been increasing exposure to select auto ancillary companies, viewing them as precision engineering businesses with strong global demand. Helios has added names such as Sona BLW Precision, while remaining selective within the broader auto ancillary space.
