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A surge of overseas investment activity characterized the first quarter of FY26, with foreign institutional investors (FIIs) sharply increasing stakes in select Indian small-cap companies. This move signals growing global confidence in India’s emerging growth stories outside the blue-chip universe—particularly in finance, technology, auto ancillaries, and manufacturing.
Introduction
FIIs significantly raised their holdings in at least 10 notable small-cap firms during the quarter ended June 2025. The increase comes amid broader positive sentiment for India’s economic resilience and sectoral opportunities, even as domestic investors continue to dominate the equity landscape.
Key Developments Driving the Trend
A marked rise in FII investment was recorded in a series of Nifty 500 and other emerging small-cap companies.
The automotive and financial sectors, in particular, attracted the most foreign capital.
Robust operating results, improved asset quality, and strong sectoral tailwinds are fueling these investments.
Spotlight on Big Gainers: Stake Changes and Sector Performance
Here are the ten headline small-cap stocks that witnessed meaningful increases in FII shareholding:
Kfin Technologies: FII stake up 5.3 percentage points to 27.81 percent.
JK Tyre & Industries: FII shareholding rose by 5 points to 16.11 percent.
Indegene: FII stake up 4.8 points to 10.04 percent.
Capri Global Capital: An increase of 3.7 points, hitting 4.72 percent.
RBL Bank: FII holdings up by 3.1 points, now at 17.56 percent.
Intellect Design Arena: 3 percentage-point increase, reaching 27.83 percent.
PNB Housing Finance: FII ownership up by 2.7 points to 24.18 percent.
Aptus Value Housing Finance: Now at 30.41 percent FII stake, up 2.7 points.
Sagility India: FII investors’ share jumps to 5.99 percent.
PG Electroplast: FII holding up by 2.6 points, now at 13.02 percent.
Company Performance Underpins Rising Stakes
PNB Housing Finance:
Q1 FY26 consolidated PAT up 23.26 percent year-on-year to Rs 533.5 crore; revenue grew 13.88 percent YoY to Rs 2,076.11 crore.
Net Interest Margin improved to 3.74 percent from 3.65 percent YoY.
Gross NPA improved to 1.06 percent, reflecting better asset quality.
The company’s focus on high-yielding segments like affordable housing led to 18 percent growth in retail assets, with these segments accounting for 37 percent of the business.
RBL Bank:
Q1 FY26 net profit fell 46 percent YoY to Rs 200 crore—mainly due to lower net interest income (down 13 percent) and higher provisions.
Net Interest Margin for the quarter stood at 4.5 percent.
However, asset quality remained stable with a GNPA ratio of 2.78 percent and Net NPA improved to 0.45 percent.
Management is optimistic about margin recovery in H2 FY26, emphasizing medium-term growth of 14–15 percent.
Why FIIs Are Betting on These Small-Caps
Earnings Resilience: Despite short-term headwinds (as seen with RBL Bank’s profit dip), many small-caps are showing robust topline and asset quality improvement.
Sectoral Leadership: Companies like PNB Housing Finance are expanding rapidly in high-potential markets such as affordable housing.
Multibagger Potential: Historical analysis reveals small-caps with rising FII stakes often outperform, sometimes turning multibagger within the year.
Sectors in Focus
Financials: Non-banking finance and housing finance are top draws, supported by improved loan asset quality and expansions into high-yield retail channels.
Auto Ancillaries: Companies such as JK Tyre benefit from strong demand and exports.
Tech-Driven Businesses: Digital and niche solutions providers like Kfin Technologies and Intellect Design Arena are appealing due to unique value propositions and scalability.
Implications and Outlook
FIIs’ selective accumulation in small-cap stocks reflects a nuanced approach, driven by top-line resilience, improving profitability, and sectoral tailwinds. For retail investors, these trends illuminate opportunities but also urge caution—prompting thorough diligence as foreign flows can also heighten stock-specific volatility.
Source: The Economic Times, Moneycontrol, TradeBrains, and company filings.
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