This proportion of the domestic institutional investments in the top 50 companies has more than doubled in the past two years after market regulator Sebi enforced categorisation rules on mutual funds and restricted the flows into the mid- and small-cap companies. Outside the top 200 companies, domestic institutions have only 4 per cent holding.
Sebi issued a circular in October 2017 defining large-cap, midcap and small-cap companies in order to ensure uniformity for the universe of equity mutual fund schemes. This along with flight to safety following the carnage in smaller stocks and lower liquidity outside top 50 stocks have further led to incremental flows into larger stocks, according to fund managers. This explains the widening gap between the large and small companies — the NSE small cap index has underperformed the broader Nifty by 40 per cent over the past two years.
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