Fund Managers: Large-Cap Stocks Lagging in India Market Shift

Three prominent fund managers have collectively concluded that India’s largest stocks are underperforming despite broader market growth. This consensus from Samir Arora of Helios Capital, Shankar Sharma of GQuant Investech, and Nilesh Shah of Kotak Mahindra Asset Management points to a fundamental shift in market dynamics.

The experts highlight minimal turnover within Nifty 50 constituents, suggesting limited growth potential for these mature companies. Specific drivers for this large-cap stagnation include a lack of innovation in some sectors and significant foreign portfolio investor selling.

• Samir Arora noted the ‘pathetic performance’ of the top 10-12 Indian companies, particularly in consumer and IT sectors, attributing it to innovation gaps.
• Nilesh Shah pointed to heavy foreign portfolio investor (FPI) selling in banking and IT stocks as a key factor depressing valuations.
• Shankar Sharma emphasized a structural market shift where smaller, more agile companies are now driving the majority of growth.

AI Debate Divides Experts

Views on the influence of the global AI trade diverge among the fund managers. This divergence impacts their outlook on India’s market re-rating prospects and the beneficiaries of technological advancements.

• Nilesh Shah believes India’s market re-rating awaits a reversal of the ‘anti-AI trade’ elsewhere, given India’s limited direct AI plays.
• Shankar Sharma argues that the AI and data-center buildout represents a structural, multi-year capital expenditure cycle, with Indian small caps benefiting by supplying components.
• Samir Arora dismissed the AI framing as a distraction, suggesting the focus should remain on the underperformance of Indian incumbents versus faster-growing domestic companies.

Capital Redeployment Trends

All three managers observe a significant redeployment of capital within the Indian market. Foreign capital shifts and domestic institutional investor power are reshaping ownership patterns.

• Foreign investors sold an estimated $180-200 billion worth of stock in India’s largest companies between March 2022 and March 2026.
• A substantial portion of this capital was reinvested into other Indian stocks, particularly through IPOs and QIPs in newer companies.
• Nilesh Shah confirmed that domestic institutional investors (DIIs) are now powerful enough to absorb large secondary-market blocks.
• Over 100 small and mid-cap companies have reached all-time-high FPI ownership, reflecting this capital migration.

The consensus advice from these managers is to prioritize earnings growth and sector-level winners across the market. Investors should look beyond the historical performance or index weight of traditional large-cap stocks.