FII exposure in Nifty stocks retreats from peak after Rs 1.6 lakh crore exodus in 2025. Where’s money flowing?

Foreign institutional investor holdings in Indian equities have eased substantially at the large-cap level, even as overseas investors rotate selectively into mid and smallcap stocks, according to a report by Elara Capital.

FII ownership in the Nifty 50 has fallen from a peak of 28.3% in FY21 to 25.5% by December 2025, reflecting rising global risk aversion. At the same time, FII participation in mid and smallcap indices has climbed to multi-year highs of 16.4% and 14.2%, respectively, signalling a clear shift in positioning rather than a broad withdrawal from Indian markets.

The report highlights a parallel structural rise in domestic institutional investor ownership, which has increasingly reshaped market ownership since FY20. DII holdings accelerated further after FY22, led by large-cap indices such as the Nifty 50 and the Nifty 500. Elara Capital notes that the growing dominance of domestic capital has improved market stability and depth, with DII inflows partly offsetting promoter dilution. In mid and smallcap stocks, DII accumulation has been steadier but less pronounced.


Promoter shareholding trends point to a gradual but consistent shift in ownership structure. While promoter holdings remain structurally higher in mid and smallcap stocks compared with large caps, they have declined across indices since FY23. This has improved free float and opened the door to greater institutional and public participation. The report adds that promoter dilution has been sharper in mid and smallcap segments, indicating a faster transition in ownership dynamics outside largecap benchmarks.

Public shareholding, by contrast, has lost momentum. Retail ownership surged during FY21 and FY22 amid heightened market enthusiasm, but has since moderated. Although public shareholding remains higher in mid and smallcap indices than in largecaps, it has broadly stagnated or mildly declined after FY22. Elara Capital says these points point to limited retail-led expansion in ownership, with institutional investors increasingly dominating the market landscape.

Sectoral data shows a sharp divergence between foreign and domestic investors. FIIs have raised exposure to telecom, media, materials, metals and financials, while cutting back on utilities, consumer staples, consumer discretionary, banks and real estate. Telecom saw the largest year-on-year increase in FII holdings, while utilities recorded the steepest decline, underscoring highly selective foreign allocations.

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Domestic investors, however, have favoured consumer discretionary, IT services and real estate, while trimming exposure to materials, utilities, autos, transportation and metals.

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