Foreign institutional investors (FIIs) have lifted their exposure to mid- and small-cap stocks to multi-year highs, even as their allocations to large-cap benchmarks have moderated, according to a report by Elara Capital that highlighted accelerating sectoral churn and a structural reshaping of market ownership.
Elara’s report titled Ownership Mosaic, analysing equity ownership trends across investor classes, show FII participation in the Nifty Midcap 150 rising to about 16.4 per cent by December 2025, while exposure to the Nifty Smallcap 250 increased to roughly 14.2 per cent. In contrast, FII holdings in the Nifty 50 eased to around 25.5 per cent from a peak of more than 28 per cent in FY21, reflecting a more selective risk appetite amid global volatility.
The brokerage said the pattern underscores tactical foreign flows, with investors rotating toward growth opportunities beyond frontline stocks rather than exiting the market altogether.
The rise in mid- and small-cap exposure has coincided with sharp sector-level reallocations. FIIs have sharply raised stakes in telecom, media, materials, metals and financials over the past year, while trimming positions in utilities, consumer staples, discretionary stocks, banks and real estate. Telecom emerged as the biggest beneficiary of foreign inflows, while utilities saw the steepest year-on-year reduction, pointing to a highly differentiated approach across industries.
Domestic institutional investors (DIIs), meanwhile, continued to consolidate their role as the market’s dominant long-term capital base. Elara noted that DII ownership has climbed steadily across major indices since FY20, accelerating after FY22 and particularly strengthening in the Nifty 50 and Nifty 500.
Their buying has been concentrated in consumer discretionary, information technology and real estate, even as they pared back exposure to materials, utilities, autos and metals. The divergence between foreign and domestic positioning suggests increasingly nuanced views on sectoral prospects within the same market environment.
Promoters, on the other hand, have gradually diluted stakes across indices since FY23, with sharper reductions visible in mid- and small-cap companies. While promoter holdings remain structurally higher outside the large-cap universe, Elara said the trend points to improving free float and a slow shift toward greater institutional participation. The steepest promoter cuts have been seen in telecom, IT and industrials, while additions have been modest and focused on capital-intensive areas such as autos and utilities.
Public shareholding, which surged during FY21 and FY22 amid a wave of retail enthusiasm, has since plateaued to mildly lower levels. According to Elara, retail ownership remains higher in smaller companies than in large caps, but growth in public participation has slowed, leaving institutional investors to play an increasingly dominant role in driving market depth and liquidity.
Taken together, the brokerage said India’s equity market is undergoing a structural rebalancing, with control slowly shifting away from concentrated promoter ownership toward a more institutionalised structure led by domestic funds, while foreign investors deploy capital in a cyclical and tactical manner.
“Control is steadily shifting from concentrated promoter ownership toward an institutionalized market structure, improving governance standards, liquidity and market depth, with the transition most visible in mid- and small-cap segments,” the report read.
Published on January 30, 2026
