Nifty 50 outperforms midcap, smallcap stocks as FIIs return to buying; large-caps lead rebound

The Nifty 50 has outperformed the broader market over the past week, buoyed by renewed FII interest in large-cap stocks and easing global jitters. The benchmark index gained nearly 2 percent between October 10 and October 17, climbing from 25,285 to 25,781, while the Nifty Midcap 100 and Nifty Smallcap 100 rose by 1 percent and 0.5 percent respectively during the same period.

The momentum extended into today’s session, with the Nifty 50 up 0.80 percent in early trade. In comparison, the Midcap 100 inched up 0.08 percent and the Smallcap 100 gained 0.47 percent, indicating that large-caps continue to lead the recovery phase.

Market participants attribute the move to signs of foreign institutional investors (FIIs) turning buyers in the secondary market after months of sustained selling. Data from NSDL shows that between October 7 and October 15, FIIs were net buyers in four of seven trading sessions, purchasing over Rs 2,600 crore worth of equities.

After being persistent sellers through most of 2025, foreign investors appear to be regaining confidence in Indian equities. “They have already sold significantly, and the recent buying in secondary markets reflects improving earnings visibility and better economic parameters,” said Deven Choksey, Managing Director, DRChoksey FinServ.

By the numbers: large-caps lead the charge

FII activity (7-15 Oct 2025)

• Net buying in 4 of 7 sessions
• Cumulative inflow: > Rs 2,600 crore (secondary market)
• Latest session: Nifty +0.8%, Midcap +0.08%, Smallcap +0.47%

Sentiment shift driven by valuations and macro factors

According to VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the slowdown in foreign selling and subsequent buying are notable. “The intensity of FPI selling slowed down significantly in October, and FIIs turned buyers in the cash market in the last four trading sessions of the week ended October 10, purchasing Rs 3,289 crore worth of stocks,” he said.

He attributed the shift to two factors -- narrowing valuation differentials between India and other emerging markets, and an upgrade in India’s growth and earnings prospects. “The GST cuts and low interest regime are expected to boost India Inc’s earnings in FY27, which the market will soon start discounting,” Vijayakumar added.

However, he cautioned that global headwinds remain, particularly amid renewed US-China trade tensions after President Trump’s recent tariff threats. “The FPI flows, going forward, will depend on how this renewed trade war pans out in the coming days,” he said.

Positive undertone in domestic sentiment

Analysts noted that consistent FII buying late last week helped stabilise Indian markets even as global volatility persisted. “Domestic equities extended their strong recovery rally, buoyed by positive global cues and renewed optimism surrounding India-US trade discussions,” said Vinod Nair, Head of Research at Geojit Financial Services.

This optimism is echoed by Sunny Agrawal, Head of Fundamental Research at SBI Securities, who said investors are hopeful of a positive outcome on the India-US trade agreement within the next 30 to 60 days. “That could remove a key overhang,” he said, though cautioning that the durability of inflows remains uncertain.

Large-caps favoured by foreign flows

Historically, FIIs have tended to allocate capital to large, liquid stocks, which may explain the relative strength of the Nifty 50 in recent sessions compared with midcap and smallcap indices. Analysts believe that sustained foreign buying could further consolidate the leadership of large-cap stocks in the near term.

Vijayakumar noted that the market remains technically strong, with short covering and strong results from major banks adding support. “Good results from the banking majors HDFC and ICICI can impart fundamental strength, and if Reliance Industries also joins the rally, the market can sustain the momentum for some more time,” he said.

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