FII Ownership Trends: Shift from Large Caps to Mid & Small Caps
A recent chart from Ace Equity and Ambit Capital provides a fascinating insight into how Foreign Institutional Investor (FII) ownership has changed in the last 20 years. It shows a significant shift in FII interest from large-cap stocks toward mid and small-cap stocks.
Record-High FII Ownership in Mid & Small Caps
The data reveals that mid-cap stocks currently have an FII ownership of around 17%, the highest in the last two decades. Similarly, small-cap stocks, represented by the pink line, have reached 11%, also a record high. On the other hand, large-cap stocks have seen a steady decline in FII ownership and are now at their lowest levels in 20 years.
Momentum and Fund Flows
One possible explanation for this shift is that FIIs are following a momentum-based strategy—wherever there are higher gains, more money flows in. Mid and small-cap stocks have significantly outperformed large-cap stocks in recent years, attracting greater foreign investment. However, the downside of this trend is that stocks with rapid gains can also experience sharper declines when trends reverse.
Declining FII Interest in Large Caps
Since 2020, there has been a gradual outflow of FII money from large-cap stocks, suggesting a clear shift in foreign investor sentiment. Whether this shift is driven by valuations, better growth prospects in smaller companies, or simply momentum chasing, it signals a major change in market dynamics.
What Lies Ahead?
It remains to be seen whether this trend will continue or if there will be a reversal when market conditions change. For now, FIIs seem to be more inclined toward mid and small caps rather than large caps. What are your thoughts on this shift? Let me know in the comments!
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