Asset managers bypass most niche Indian stock indices over concentration and regulatory risks
While Indian exchanges have proliferated specialized market gauges, asset managers are rejecting most of them as benchmarks, signaling that fund demand remains tightly focused on liquid, structurally resilient themes.
Indian stock exchanges have introduced dozens of highly specialized market indices in recent years, yet the vast majority remain without backing from mutual funds or passive investment products. An analysis of exchange data reveals that only a small fraction of these niche gauges are actually utilized as benchmarks by asset management companies.
Of the 61 niche indices currently maintained by the National Stock Exchange, just 23 are used as benchmarks or tracked by passive funds. Similarly, only seven of the Bombay Stock Exchange’s 26 niche indices have attracted comparable institutional adoption.
Prominent examples of untracked indices include the Nifty Waves index, which covers films, digital media, and gaming, and the Nifty Sugar and Ethanol index, launched to track the top 15 producers in that sector. Conglomerate-specific benchmarks, such as those dedicated to the Tata Group and Mahindra Group, have also failed to attract dedicated fund launches.
Investment professionals cite excessive concentration risk and cyclical volatility as primary deterrents. Vivek SG, founder of Wealth Crafts, noted that a conglomerate-specific index fund may decline sharply following a single corporate governance issue.
The development of these products often involves asset managers back-testing historical data and requesting that exchanges create a corresponding index. However, a new niche index frequently remains tied to a single asset manager for years until broader market demand materializes.
When themes do gain traction, the financial rewards can be substantial. UTI Mutual Fund launched its Nifty200 Momentum 30 Index Fund in 2021 with assets of ₹805 crore, and as the momentum factor gained popularity, those assets swelled to ₹8,433 crore by May.
Index providers argue that utility extends far beyond retail investment products. NSE Indices Ltd, which manages over 419 indices, stated that success is measured across multiple dimensions, including portfolio construction, performance measurement, and customized institutional mandates.
Market observers note that a lack of current fund offerings does not preclude future adoption. "Just because there isn't a fund today doesn't mean there won't be one tomorrow," said Srikanth Meenakshi, co-founder of PrimeInvestor.
Family offices and portfolio management services often track these specialized gauges first, potentially paving the way for broader exchange-traded funds if institutional demand grows. Before committing capital, fund houses rigorously evaluate the underlying mechanics of any proposed benchmark.
Vaibhav Shah of Mirae Asset Mutual Fund stated that managers first verify the liquidity of constituent stocks, rebalancing frequency, churn, and replication efficiency. Only after confirming these structural elements do firms assess distributor and investor demand.
