Foreign Investors' Share of Indian Equities Falls, But Diversify Holdings Across 1,300 Stocks

Foreign Institutional Investor Holdings in Indian Equities Show Shift in Investment Strategy

Foreign institutional investors (FIIs) have been selling their holdings in Indian equities aggressively, but a closer look at the data reveals a more nuanced story. While the aggregate foreign institutional investor holding for Indian stocks has slipped from 20 percent a decade ago to 15 percent currently, the number of stocks held by FIIs has quietly increased across the listed universe.

According to ICICI Securities, the bulk of the retreat occurred after the Russia-Ukraine conflict in 2022, coinciding with the bottom formation of US-based big-tech stocks. However, during this drawdown phase in India holdings, there has been an expansion in the number of stocks where FPIs have invested more than one percent, growing from approximately 900 to 1,300 currently.

This change in investment strategy is evident in the top stocks held by foreign investors in 2022, which then contributed to around 41 percent of their India portfolio. However, this contribution has fallen sharply to 21 percent. Meanwhile, while reducing their exposure to legacy stocks, FIIs have increased their holdings in high-growth, new-age sectors.

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Among large caps, Eternal, HDFC AMC, and Polycab India saw notable jumps in FPI ownership, while in the mid-cap space, Max Healthcare, GE Vernova T&D, and Paytm emerged as key beneficiaries of foreign inflows. In smaller companies, micro-cap names such as Home First Finance and CarTrade Tech witnessed FPI holding increases of over 30 percentage points between March 2022 and March 2026.

The data suggests FIIs are increasingly diversifying into sectoral and thematic growth stories spanning financials, industrials, healthcare, and consumer-linked businesses, rather than concentrating portfolios in a handful of benchmark heavyweights. ICICI Securities noted that the aforementioned trends indicate that FPI investments in India are becoming broad-based driven by growth opportunities. However, the copious selling in the erstwhile concentrated positions is skewing the overall picture.