Indian Stock Market Concentration Analysis

Business Question — what we set out to answer

A handful of Indian large caps account for a disproportionate share of index returns and total market cap. This project quantifies concentration at the index and market level — using the Herfindahl–Hirschman Index (HHI), top-10 weight share, and cumulative market-cap curves — to understand how the risk profile of a broad Indian equity allocation has changed.

Data Sources — where the data came from

• NSE / Nifty index methodology files: Constituent weights and reconstitution history.
• CME & NSE historical constituent data: Free-float market cap by stock over a decade.
• BSE market-cap aggregates: Whole-market concentration measures.

Methodology — how we modelled it

• Weight share build: Reconstructed top-N weight share of Nifty over FY15–FY26.
• HHI computation: Sum of squared free-float market-cap shares at index and market level.
• Cumulative concentration curve: Lorenz-style curve of market cap vs. number of stocks.
• Sector attribution: How much of concentration is driven by financials, IT, and energy.

Key Insights

• Narrow leadership: A small cluster of stocks drives an outsized share of Nifty returns — passive investors are effectively making concentrated bets.
• Rising HHI: Market-level concentration has trended up, reducing the effective breadth of a "broad" index.
• Sector skew: Concentration is largely a financials + IT + energy phenomenon.
• Active opportunity: Dispersion between the top and the rest creates potential for active managers in mid and small caps.

Limitations

Free-float market-cap data has occasional methodology breaks on index rebalancing. Concentration measures are point-in-time and can shift sharply in corrections or new listings.