Blitz Bureau
NEW DELHI: India’s mutual fund industry is expanding its stock universe at the fastest pace in more than a year, even as overall equity inflows moderate.
Fund houses added 164 new stocks to their portfolios over the past 12 months, reflecting a 15.2 per cent year-on-year jump — the strongest growth since July 2024.
With this, the industry now holds positions in 1,244 listed companies, marking the fifth straight month of record-high stock exposure, according to data analysed by Business Standard. This is a dramatic rise from 746 stocks in June 2017, highlighting a multi-year shift toward broader market participation.
IPOs driving expansion
A large part of the expansion comes from companies entering the market through IPOs and FPOs.
India witnessed over ₹1.3 trillion worth of IPOs in 2023, with nearly ₹83,000 crore raised in FY24 so far. Many of these new-age and growth-driven companies, often backed by private equity, are now finding a place in MF portfolios.
According to market veteran U R Bhat, the pipeline remains robust:
“There is no shortage of good paper. More companies are coming to market to fund capex, and mutual funds are selectively participating in both new listings and undervalued sectors.”
Fund managers are also revisiting companies that were previously overlooked due to regulatory issues or sector-specific corrections.
Portfolio concentration dips
Meanwhile, mutual funds are significantly reducing their portfolio concentration.
The Herfindahl–Hirschman Index (HHI) — a standard measure of concentration — fell to 145 in September 2025, down from December 2020 levels, signalling wider diversification.
Foreign portfolio investors continue to remain more concentrated with an HHI of 188, according to NSE’s Market Pulse report. Updated October data analysed by Business Standard shows an additional fall in MF concentration, indicating a sustained strategy to widen the investment base.
Market analysts said a larger set of companies now meet institutional investment criteria as their market capitalisation has risen over the past few years.
Equity inflows into mutual funds dipped to ₹24,690 crore in October, compared to ₹42,702 crore in July 2023, which was the highest monthly inflow this calendar year.
Despite this moderation, fund houses continue to expand their portfolios due to:
• Strong listing activity
• Broader market participation
• The need to reduce concentration risk
• Shifting valuations across sectors
This indicates a structural approach to diversification, rather than inflow-driven expansion.
Stock additions
The last three years have seen exceptional returns in the small- and mid-cap segments. Many emerging companies in these categories have grown large enough to attract institutional inflows.
However, this also brings valuation risks. PrimeInvestor co-founder Vidya Bala cautioned:
“Many small companies have contributed significantly to wealth creation. But valuations are rising widely, so mutual funds are entering with very small position sizes initially.”
Still, the segment remains a major contributor to the rising number of stocks in MF portfolios.
What it means for investors
The acceleration in stock additions reflects a deeper structural transformation in India’s investment landscape:
Broader diversification: Fund houses are reducing dependence on a few heavyweight stocks.
Greater opportunity access: Investors gain exposure to new-age companies, innovative business models and high-growth sectors.
Improved risk management: Lower HHI readings signal better spread of risk across sectors and market caps.
Stronger long-term participation: Even with slower inflows, mutual funds are preparing for long-term wealth creation cycles.
The outlook
India’s mutual fund industry appears set for continued expansion across sectors and market segments, supported by a vibrant IPO market, strong domestic liquidity and rising corporate growth.
While small- and mid-cap valuations require caution, the broader trend points to a healthier, more diversified investment ecosystem.
As the industry crosses 1,244 stock exposures, it signals a maturing market where fund managers are actively widening their search for opportunities — creating a more balanced, robust landscape for millions of retail investors.