FIIs Shift Their Focus from Large-Caps to Mid and Small Caps

Foreign Institutional Investors (FIIs) are changing how they invest in India this year. In 2025, they have sold more than Rs 2 lakh crore worth of Indian stocks. They are pulling back from large-cap companies and putting more money into mid-cap and small-cap stocks. This shows they are confident in finding growth opportunities beyond well-known big companies.

A report by Elara Capital shows that foreign institutional investors have reduced their ownership in the Nifty 50 index from 28.3% in FY21 to 25.5% by September 2025. Meanwhile, their holdings in mid-cap and small-cap stocks have increased to 16.1% and 14.2%. This indicates that FIIs are becoming more selective and are now focusing on parts of the market that are growing faster and are undervalued.

FIIs have reduced their investments in several sectors. They have cut back in Energy by 9.3% compared to last year, in Utilities by 10.1% and in Consumer Staples by 7.3%. Analysts think this cutting back is due to profit-taking and caution because of uncertainty in global markets. On the other hand, FIIs have increased their investments in some sectors. They have raised their stakes in Industrials by 3.9%, in Healthcare by 12.9%, in IT by 7.9%, in Materials by 7.6%, in Media by 17.1%, in Telecom by 14.4% and in Transportation by 16.2%. These sectors are likely to benefit from India's growth and improved global demand.

Must Read: Top 10 Mutual Funds for SIP in 2025: Best Picks to Grow Wealth

Domestic Institutional Investors (DIIs), such as mutual funds and insurance companies, have increased their activity in the market recently. Elara Capital reports that DIIs now play an essential role in stabilizing the market by balancing foreign investment outflows and boosting market strength. They have raised their investments in several sectors, including Consumer Discretionary, which increased by 26.4% compared to last year, Telecom grew by 5.5% and Financials went up by 12.4%. On the other hand, they reduced their investments in Media, which fell by 16.6% and in Utilities, which dropped by 11%.

Promoter ownership in companies has been decreasing, allowing more institutional investors to enter. In the Nifty 50 index, promoter holdings fell from 44% in FY21 to 40%. For mid-cap and small-cap companies, the numbers are 54% and 50%. This shows that Indian stocks are becoming more widely held by institutions.

Retail investor participation increased significantly during FY21-FY22 but has now stabilized. Public holdings in the Nifty 50 are about 11.3%, while small-cap stocks have around 20% held by retail investors. This balance shows that the market is maturing, with institutional and retail investors sharing space more evenly.

In 2025, India’s stock market is changing. More local investors are driving the market as foreign investors become less dominant. This shift is supported by steady investments from domestic institutional investors (DIIs) and a growing sense of confidence among Indian investors. While foreign institutional investors (FIIs) adjust their portfolios, India's long-term growth story remains strong, thanks to increased local participation and a more balanced market.

Related Blogs:

1. Top 5 Liquid Funds in India 2025: For Safe & Instant Returns

2. Best SIP Plan for 20 Years: With Equity, Debt & Hybrid Funds

3. Best Mutual Funds to Invest in 2025: Low-Risk Options for High Return