Foreign Portfolio Investors Shift to Smaller Stocks in India's Market

Foreign Portfolio Investors (FPIs) have increased their stake in smaller companies, holding investments in over 1,800 firms, a rise from 1,200 four years ago. This shift reflects a decrease in focus on large-cap stocks. Meanwhile, domestic mutual funds have reached a record share in India's equity market.

Foreign Portfolio Investors (FPIs) are broadening their horizons by enhancing investments in Indian companies, with stakes in over 1,800 firms as per a National Stock Exchange (NSE) report. This marks a notable rise from 1,200 companies four years earlier, showcasing a trajectory towards diversification in their investment patterns.

The report indicates a diminishing proportion of Nifty50 and other top-tier companies in FPI portfolios, which mirrors their growing interest in smaller firms. Notably, the Herfindahl-Hirschman Index, a measure of portfolio concentration, has decreased after a brief spike during the COVID-19 pandemic era, indicating a persistent trend of diversification away from large-cap stocks.

Simultaneously, domestic mutual funds have reached a significant milestone within India's equity market, claiming a record 9.5% share of listed equities in the second quarter of the fiscal year. This surge is fueled by steady inflows via systematic investment plans (SIPs). Conversely, the representation from FPIs and individual investors in the market has held steady.

(With inputs from agencies.)