FIIs trim large-cap exposure, hike exposure to mid-caps, small-caps

Foreign investors have pulled out over Rs 2 lakh crore from Indian equities in 2025.

Indian equities in 2025 have seen a sharp sell-off from foreign institutional investors (FIIs), with over Rs 2 lakh crore offloaded. However, while large-cap counters have borne the brunt of the selling, the participation in mid- and small-cap equities has jumped to multi-year years.

The FII exposure to the Nifty 50 index has fallen from a peak of 28.3% in FY21 to 25.5% by September 2025, noted Elara Capital in a note. However, the exposure to mid-caps and small-caps has jumped to 16.1% and 14.2%, which indicates selective rotation.

Foreign institutional investors continued to trim their holdings across most sectors, as a result of their cautious approach amid global volatility and profit-booking, after steady inflows in previous quarters.

Various sectors such as Energy (down 9.3% year-on-year), Utilities (down 10.1%), and Consumer Staples (down 7.3%) witnessed lower foreign ownership, suggesting a shift away from defensive and high-valuation segments.

On the other hand, FIIs marginally increased their exposure in Industrials (up 3.9%), Health Care (up 12.9%), Information Technology (up 7.9%), Materials (up 7.6%), Media (up 17.1%), Telecom (up 14.4%), and Transportation (up 16.2%).

Elara noted that domestic institutional investor or DII ownership has expanded steadily across segments, driven by sustained mutual fund and insurance inflows. “Domestic institutions have emerged as the stabilizing force, offsetting FII outflows and underpinning market resilience,” noted the report.

DIIs maintained their counter-cyclical buying trend, increasing exposure across sectors. Notably, Consumer Discretionary (+26.4% YoY), Telecom (+5.5%), and Financials (+12.4%) witnessed robust, while softness persisted in Media (-16.6%) and Utilities (-11%), aligning with weak earnings visibility.

Promoter holdings continue to trend lower, reflecting equity dilution, and rising institutional participation. “Nifty 50 promoter stakes have declined from their peak of 44% in FY21 to 40%, while mid- and small-cap holdings fell sharply to 54% and 50%, respectively, indicating broadening ownership and greater market institutionalization,” added the report.

Further, during this time, public shareholding surged during FY21-22 amid retail enthusiasm but has since moderated. In Nifty 50, holdings normalized to 11.3% while small caps remain retail-heavy at 20%.

Elara noted that overall, India’s equity landscape shows a shift from FII-driven to domestically anchored markets, supported by deepening DII participation, stable promoter confidence, and structurally broad-based retail ownership.

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