{"id":566,"date":"2026-05-11T07:22:18","date_gmt":"2026-05-11T07:22:18","guid":{"rendered":"https:\/\/develop.webonictech.com\/hewepro\/?p=566"},"modified":"2026-05-11T08:33:15","modified_gmt":"2026-05-11T08:33:15","slug":"the-decade-of-wealth-creation-in-businesses-beyond-large-caps","status":"publish","type":"post","link":"https:\/\/develop.webonictech.com\/hewepro\/the-decade-of-wealth-creation-in-businesses-beyond-large-caps\/","title":{"rendered":"The Decade of Wealth Creation in Businesses beyond Large Caps"},"content":{"rendered":"\t\t
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Articles<\/h3>\t\t\t\t<\/div>\n\t\t\t\t
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The Decade of Wealth Creation in Businesses beyond Large Caps<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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By hpadm <\/h3>\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t
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Indian Equity markets are highly skewed. As of 9th<\/sup>\u00a0Sept-22 closing, the markets crossed a market capitalization of Rs 283 lakh crores ($3.5 trillion). It is imperative to note here that the 30 companies that form the Sensex 30 are worth more than half of India\u2019s total market cap, and the 50 companies of the Nifty 50 pack constitute about 2\/3rd<\/sup>\u00a0of the total Indian equity market valuation, and the top 100 companies constitute about 80% of the equity markets. Hence, it is evident that the markets are highly skewed.<\/p>

In a skewed market, 2 things happen:<\/p>

  • If the top 50 companies are running expensive, the whole market looks to be highly expensive<\/li>
  • If the top 50 companies are running cheap, the whole market looks to be cheap<\/li><\/ul>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t
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    Insight #1<\/span>: The valuations of Top 100 companies do not convey the valuation of the broader markets.<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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    Beyond the Top 100 companies, there are a lot of businesses that are of decent size (but do not qualify as large caps) as well, that have been performing well in their respective line of businesses.<\/p>

    When one focuses on the scrips forming Nifty50, one limits himself to only certain sectors like banking, finance, and insurance [35% of Top 100 stocks]; IT [15%]; FMCG [14%]; and 8-10% each of Oil & Gas, Pharma, Auto; and so on.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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    Insight #2<\/span>: Nifty & Sensex constitute of only few sectors like Banking & Finance, IT, FMCG, Oil & Gas, Pharma, and so on. Sectors like Construction, Textile, Specialty Chemicals, Travel & Tourism, and so on are also crucial to the Indian Economy but are hardly a part of Nifty & Sensex.<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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    But who holds this market? What is the shareholding pattern of the Indian Equity markets as a whole?<\/strong><\/p>

    About 55% of the total market cap of Indian Equity markets is owned by promoters [the market cap of US is $48+ trillion, but promoters holding is only roughly about 6%]. About 19% is owned by FIIs [Foreign Institutional Investors], about 14% is owned by DIIs [Domestic Institutional Investors]; and the balance 12% is owned by PMS Managers, Family Offices, Retail Investors, HNIs, and so on.<\/p>

    2\/3rd<\/sup>\u00a0of our market, which is the top 50 stocks- here, the promoter\u2019s stake is around 51%. In the basket of the next 50 stocks [Stock #51 \u2013 100], the promoter\u2019s stake is around 53%; whereas in the basket of Midcap Stocks [Stock #101 \u2013 250], about 59% is the promoter\u2019s stake. In the next basket of Stock #251 \u2013 500, about 57% is the promoter\u2019s stake.<\/p>

    Moving on the bifurcation of investments done by FIIs, it is noteworthy to realise that about 1\/3rd<\/sup>\u00a0of their investment is into the Top 3 Stocks [Reliance Industries, HDFC, and TCS]. About 80% of their investment is into the Top 50 stocks. For domestic [institutional & retail], if one is holding any of these stocks, one has to actively track FII movements as any FII action on these stocks can affect its price.<\/p>

    A similar situation pans out at the end of DIIs- about 80-85% of their money is invested into the top 100 stocks.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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    Insight #3<\/span>: 7-8 businesses constitute 75-80% of Nifty\/Sensex, and the market cap as a whole; but they do not make 70-80% of the Indian economy- hence the disconnect is visible between the economy & the markets.<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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    To put this into perspective, one can witness that between 1st<\/sup>\u00a0Jan-2008 to 15th<\/sup>\u00a0July-2013 \u2013 over these 5.5 years, while the Sensex was more or less at the same levels, our economy\u2019s GDP grew 8.5% p.a. in real terms. To give a more recent example, from March 2020 to March 2022, the economy has not moved at all [GDP fell 7-8% in FY21 and went up by the same % in FY22], but the markets have gone up crazily!<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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    Insight #4<\/span>: Sensex & Nifty\u2019s job is to reflect what\u2019s happening in Sensex & Nifty companies, and not the entire Indian economy.<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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    Let\u2019s break this down to connect the dots. In the last 2 years, businesses in sectors like banking, financial services, IT, benefited from the disruption\u2026 and these are also the sectors that form about 70-80% of the total market cap; hence, Sensex & Nifty witnessed a rally, reflecting growth in businesses that form 70-80% of Sensex & Nifty.<\/p>

    On the other hand, businesses in sectors like Real Estate, Tourism, Textile, Construction, and so on, took a setback. These are businesses that constitute a good part of the Indian economy but aren\u2019t the highlights of Nifty or Sensex. Hence, the economy took a hit as well, as major businesses that form the economy did not reflect growth in the said period.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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    Insight #5<\/span>: What constitutes our economy, and what constitutes the Sensex & Nifty are very different businesses.<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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    Thus, it is evident that there is a disconnect between the markets & the economy but that does not imply a negative correlation. It is simply a structure that plays out at times and as participants of the market & as contributors to India\u2019s GDP, we should be aware of this phenomenon and not remain na\u00efve.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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    The growth prospects in India are growing and India is poised to grow at a rapid pace over the next few decades- both in terms of market cap & GDP.<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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