Large institutional investors, whose share of total stock investments is continuing to grow, are shying away from helping to finance small business to such an extent that such corporations are becoming an "endangered species."

That was the central warning issued by the National Association of Securities Dealers Inc. after a year-long study of growing financing problems faced by small businesses.

The Washington-based NASD, a self-regulatory organization that monitors over-the-counter securities trading, released its 90-page report in testimony Tuesday before the Senate Small Business Committee.

Committee Chairman Gaylord Nelson (D-Wis.) said the NASD study indicates that small business "appears to face even more difficulty in raising capital for creation, for growth, or for resisting recessions or acquisitions . . . most of government policy relating to small business capital-raising has become obsolete."

Nelson warned that unless new policies are followed, "A large part of the free enterprise system . . . is in danger of irreparable harm." NASD President Gordon Macklin said current trends toward market concentration and less investment in small business are "a mistake . . . socially and economically, too."

Among the report's conclusions were the following:

By 1985, half of all stocks in the country will be owned by institutional investors compared with 26 percent in 1960 and 41 percent in 1975.

Such large institutions seldom consider investing in small or emerging businesses. Less than 24 percent of large investors even will consider buying stock of a company with capitalization under $25 million.

In the past five years, fewer than 100 firms per year were able to sell stock to the public for the first time. In 1978, 58 new issues were sold to raise $214 million; in 1969, 1,298 new issues were sold to raise $3.5 billion.

Another source of capital for emerging companies-individual investors-is dwindling. The number of American stockholders has declined from 31 million to 25 million or fewer, and individuals have sold off about $25 billion of stocks in the past six years.

To correct the growing market imbalance that discourages capital for small business, the NASD recommended a series of tax incentives and other government actions.

A majority of the recommendations are directed at Congress and laws concerning securities laws and pension investment management guidelines that many large institutions contend require them to avoid mor risky stocks in favor of blue chips.

NASD called for banking-type, tax deferred reserves for broker-dealer firms to encourage trading stocks of small companies; reserves for possible losses from such business could be set aside much like banks set aside reserves for possible bad loans.