India’s smaller stocks delivered the biggest gains in the June quarter, but the ownership data suggests investors were becoming more selective about them.
A Mint analysis of ACE Equity data covering 4,367 BSE-listed companies found that mutual funds increased their holdings in nearly two-thirds of large- and mid-cap companies during the June quarter, although the breadth of increases was lower than a year earlier. Foreign portfolio investors (FPIs) reduced holdings in a majority of companies in both segments, while retail investors cut exposure across much of the mid- and small-cap universe.
Small-caps gained 29.1% in Q1FY27, compared with 17.2% for mid-caps and 8.9% for large-caps, even as the quarter was marked by geopolitical tensions, elevated crude oil prices, global risk aversion and sustained foreign selling. Strong domestic liquidity helped support the broader market.
Holding the line
Mutual fund increases in holdings were broadest among large-caps. Of the 95 large-cap companies analysed, fund houses increased their holdings in 66.3% during Q1FY27, up from 58.9% in the previous quarter, while reducing stakes in 32.6%. On a year-on-year basis, holdings were higher in 67.4% of companies, down from 68.5% a year earlier.
Among mid-caps, mutual funds increased their holdings in 63.4% of the 142 companies analysed in Q1FY27, up from 58.5% in the previous quarter, while reducing stakes in 36.6%. On a year-on-year basis, holdings were higher in 68.3% of companies, compared with 73.2% a year earlier.
Sriram BKR, senior investment strategist at Geojit Financial Services, attributed the trend to sustained domestic equity inflows, particularly through systematic investment plans.
“Strong domestic flows have supported mutual fund buying, especially in blue chips, large-caps and top mid-caps, where FPI participation has traditionally been higher. These flows have cushioned the pressure created by foreign selling,” he said.
Nikunj Saraf, chief executive officer at Choice Wealth, said domestic and foreign institutions are responding to different sources of capital. While FPIs are influenced by global asset allocation, the dollar and developed-market themes, mutual funds continue to receive steady household savings.
Saraf said domestic funds can continue absorbing FPI selling as long as SIP flows and earnings remain supportive. “They can cushion volatility, but cannot completely immunize the market from global shocks.”
The breadth of mutual fund increases was much narrower among small-caps. Of the 4,130 companies, mutual fund holdings were unchanged in 81.5% during the June quarter, rising in 9.1% and declining in 9.4% of the firms.
Sriram said, “The limited breadth does not necessarily signal weak demand for small-cap funds; these schemes attracted net inflows of about ₹38,000 crore in 2026 through July, slightly higher than during the corresponding period last year. However, elevated valuations and liquidity constraints have prompted fund managers to concentrate investments in a narrower pool of investible companies.”
Equity mutual fund schemes attracted net inflows of ₹1.5 trillion between April and July.
Foreign investors pull back
FPIs cut holdings across all three market-cap categories.
The pullback was sharpest among large-caps. FPI holdings declined in 68.4% of large-cap companies in Q1FY27, up from 53.7% in the previous quarter, while increasing in 31.6%. On a year-on-year basis, holdings were lower in 58.9% of companies, compared with 64.2% a year earlier.
Among mid-caps, FPIs reduced their holdings in 59.2% of companies in Q1FY27, up from 56.3% in the previous quarter, while increasing exposure in 39.4%. On a year-on-year basis, foreign ownership declined in 62% of companies, compared with 67.6% a year earlier.
Foreign investors also reduced holdings in small-caps, although FPI holdings remained largely unchanged in 62.3% of companies, compared with 62.9% in the previous quarter. FPIs reduced stakes in 20.8% of companies, up from 19.2%, while the share recording increases fell to 16.8% from 17.9%.
“FPI ownership is concentrated in the top 100 companies. When foreign investors lighten large-cap positions, domestic funds become the natural buyers of that supply,” said Tanvi Kanchan, associate director at Anand Rathi Shares & Stock Brokers.
Kanchan, however, distinguished between supporting the market and driving a valuation re-rating. “Domestic flows set the floor, while foreign flows set the multiple. India has the floor, but not yet the foreign bid required for a broader re-rating,” she said.
Retail rethinks bets
Retail investors showed early signs of moving towards large-caps during the quarter. They raised stakes in 51.6% of large-cap companies and trimmed holdings in 43.2%, making large-caps the only segment where additions outnumbered reductions.
The shift remains tentative. Compared with a year earlier, retail ownership was lower in 65.3% of large-cap companies.
Caution was more pronounced further down the market-cap spectrum. Retail holdings fell in 54.9% of mid-cap companies quarter-on-quarter, compared with increases in 42.3%; the remainder were unchanged. Among small-caps, retail stakes declined in 47.9% of companies during the June quarter and increased in 41.8%, with the remainder unchanged.
Saraf said investors were booking profits in richly valued mid- and small-caps and reallocating money towards large-caps offering better earnings visibility. Meanwhile, Kanchan said some households may also be shifting from direct stock-picking to mutual funds, given the continued inflows into small- and mid-cap schemes.
“The shift towards large-caps remains narrow and must continue for another two or three quarters before it can be considered a durable trend,” she said.