FIIs increase stake in 264 smallcap stocks, 3 of them turn multibagger in 2025. Do you own any?
An analysis of shareholding pattern data from the June quarter reveals that FIIs raised stakes in at least 264 smallcap stocks. The standout winner has been Force Motors, which makes engines for the likes of Mercedes, BMW and Rolls Royce Daimler. The stock is up 165% year-to-date and FIIs have increased their holding from 8.36% to 9.77%.
The foreign money managers' Midas touch extends beyond just Force Motors. Camlin Fine Sciences delivered a hefty 125% return where FIIs have nearly doubled their stake from 1.47% to 2.88% in just 3 months. Gabriel India rounds out the multibagger trio with a 107% gain, as foreign investors boosted their position from 5.23% to 5.97%.
But the success story doesn't end there. A remarkable 17 stocks from the FII-backed list have delivered returns of at least 50% in 2025, creating a winners' circle that includes Lumax Auto Technologies (77%), Authum Investment & Infrastructure (69%), and RBL Bank (65%).
The automotive sector emerges as a clear FII favorite, with multiple auto component companies featuring prominently in the high-returns list. Lumax Industries gained 66% alongside its sister company Lumax Auto Technologies, while Federal-Mogul Goetze India surged 55% despite FIIs adding just 14 basis points to their holding.Apollo Micro Systems saw the largest stake increase, with FII holding jumping from 0.93% to 7.16%, a massive 623 basis point surge that coincided with a solid 56% stock gain.Defense and infrastructure stocks have also caught FII attention. PSU defence stock GRSE delivered 60% returns as FII stakes rose to 5.33% from 3.85%, while Bharat Dynamics gained 53.18% with foreign holdings increasing to 3.77%.
The financial services sector represents another FII hunting ground. RBL Bank's 65% surge came alongside a significant 313 bps increase in FII holding to 17.56%. Similarly, Cholamandalam Financial Holdings rewarded foreign investors with 52% returns as they raised stakes to 18.32%. Even modest FII increases have translated into meaningful returns. Navin Fluorine International gained 53% despite FII holdings rising by just 139 bps, while specialty chemicals player Shankara Building Products delivered 53% returns as FII stakes nearly doubled from 5.69% to 10.55%.
Healthcare stocks haven't escaped FII radar either. Narayana Hrudayalaya provided 51% returns with FII holding climbing to 10.46%, demonstrating the breadth of foreign investor interest across sectors. The foreign investors' smallcap strategy appears particularly focused on auto ancillaries, financial services, specialty chemicals, defence, and healthcare, sectors that have been riding India's economic momentum and structural growth themes.However, not all FII picks have delivered immediate gratification. Some high-profile names in the list have struggled, with stocks like Advanced Enzyme Technologies declining 4.36% despite FIIs dramatically increasing their stake by 1155 bps to 23.45%. This underscores that even sophisticated foreign money managers aren't immune to market volatility.
What should investors do?
Domestic brokerage firm Emkay Global has recently revamped its model portfolio to include small and midcap stocks and reduce largecap holdings. "Our model portfolio is primarily large-cap focused (Rs500bn+ market cap) with a dedicated 40% allocation to a fixed basket of 5 SMID-cap stocks as a strategic carve-out within the model portfolio is run on a top-down basis from within our Emkay universe," it said. Emkay's 5 small and midcap ideas include Bikaji Foods, Motilal Oswal. Shriram Pistons, Metropolis Healthcare and Voltas.
However, analysts point out that midcap stocks have outperformed smallcaps over the long term due to better risk-adjusted returns, stronger business fundamentals, and higher survivability. "While smallcaps offer higher short-term growth potential, they are more volatile and prone to failure. Midcaps, being more mature and financially stable, attract greater institutional interest and provide more consistent performance, making them a more reliable investment over extended periods," Equirus Wealth said.After a meaningful rally from April lows, valuations are no longer cheap."Largecaps are above long-term averages, and mid-/small-caps are trading at a premium. Still, headline P/Es mask the deeper story — midcaps continue to deliver stronger earnings growth and justify selective premium valuations. We now enter a phase where markets won't reward broad exposure. The easy beta-driven gains may be behind us. From here, business quality, earnings consistency, and management execution will define outcomes," it said.
(Data: Ritesh Presswala)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
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