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India's Passive Investing: Beyond Broad Indices
4 Aug
Summary
- Passive investing now targets specific market-cap segments.
- Investors use index products for sector and factor views.
- Thematic inflows concentrate on structural opportunities.
Passive investing in India is undergoing a significant evolution, moving beyond traditional broad-market index tracking. Investors are increasingly utilizing index-based products to express targeted views across various market segments, sectors, and investment factors. This strategic approach allows for more purposeful portfolio construction while retaining the benefits of rules-based investing.
Flows in 2026 indicate a clear trend. Passive products tracking Nifty Next 50, Midcap, and Smallcap indices collectively attracted over ₹11,600 crore. Sectoral allocations also show selectivity, with Information Technology alone garnering more than ₹4,200 crore. Factor investing strategies, including Value, Momentum, and Quality, attracted nearly ₹4,600 crore, signaling broader investor comfort with these rules-based approaches.
Thematic investing also reflects this discernment, with inflows concentrated in structural opportunities like Defence and Capital Markets. This suggests a preference for themes aligned with long-term policy and economic transformation over fleeting market narratives. Investors are layering core broad-market index funds with smaller allocations to specific areas for enhanced exposure and diversification.
