FIIs raise stakes in 12 smallcap multibagger stocks: Are you watching what smart money is buying?

In a surprising twist to the usual retail frenzy around smallcap stocks, foreign institutional investors (FIIs) have been quietly ramping up their bets—raising stakes in over 400 smallcap counters in the last quarter alone. And here’s the clincher: 12 of those stocks have delivered multibagger returns in just one year.

From CarTrade Tech’s 138% surge to Kitex Garments’ jaw-dropping 256% rally, the “little guys” are no longer just a playground for punters and Telegram tips. Global funds are now hunting for alpha in the same corners, signaling a broader shift in institutional strategy.

Among the top FII picks, CarTrade Tech saw FII holdings jump nearly 6 percentage points to 60.96% in Q4FY25. Shaily Engineering Plastics and Paradeep Phosphates also witnessed sharp increases in foreign interest, alongside 138% and 105% stock returns, respectively.

JSW Holdings, Wockhardt, and Refex Industries also joined the multibagger club, delivering over 100% gains, even as FII stake increases in these names were more modest.


What’s interesting is that while FIIs were hunting for value, retail investors were trimming exposure. In 9 of the 12 top-performing stocks with rising FII interest, retail shareholding actually declined. Take Shaily Engineering, for example—retail stake dropped by 293 basis points even as FIIs ramped up their holdings.
Also read | Retail pain rises as smallcap stocks miss the bluechip party: Is the undercurrent turning bearish?

This divergence raises a spicy question: Are retail investors exiting too soon while FIIs quietly lap up potential future winners?

Zoom out, however, and the mood is more nuanced. FIIs increased stakes in 409 smallcap stocks during the quarter, but cut exposure in 519, pointing to stock-specific conviction rather than a blanket buy-in. Similarly, retail investors raised holdings in 454 counters, but exited 495, reflecting mixed sentiment.

Some top performers even saw FII exits. Kaynes Technology, despite a 115% return, saw FIIs reduce their stake by 367 basis points, marking one of the steepest cuts. PG Electroplast, Deepak Fertilisers, and Godfrey Phillips also witnessed FII selling despite triple-digit gains—possibly signaling profit-taking or valuation concerns.

That’s exactly the tightrope global investors are walking.

“You have to understand the governance standards in India—even largecaps aren’t great, and they get worse as you move to smallcaps,” cautions Nilesh Shetty of Quantum Advisors, who has been steadily exiting smaller names. “Despite corrections, valuations don’t yet make sense.”

Also read | Sensex, Nifty soar 10% in 2 months but can this bull run survive the shadows of war?

Others, however, see a narrow window of opportunity beginning to open.

“Though at a broad-based level, valuations remain uncomfortable relative to largecaps, some pockets of comfort have started to emerge in midcaps and smallcaps over the past three months,” says Sorbh Gupta of Bajaj Finserv AMC.

“One can take a contrarian call in quality names where valuation comfort has emerged and triggers are lined up.”

For mutual fund managers like Gupta, smallcaps aren't a blanket trade. But in select names, with strong fundamentals and upcoming triggers, a contrarian approach could still work.

Still, warning signs are flashing in some corners of the market. According to Nuvama, valuations in the SMID (small and midcap) space remain “very expensive,” hovering near euphoric peaks seen in 2007, 2010, and 2018—all of which were followed by 30–60% drawdowns. While liquidity concerns have eased, growth and valuation risks persist.

“Of the three concerns plaguing SMIDs—tight liquidity, weak domestic growth, and high valuations—only liquidity has improved. Growth concerns have worsened, and valuations remain lofty,” the brokerage noted.

Ashutosh Tiwari of Equirus Securities adds that while valuations in mid and small caps have corrected from last year’s highs, they are still more than one standard deviation above their historical mean.

“Investors should focus on companies with strong cash flow generation and reasonable valuations versus their pre-COVID multiples,”
he said.

“Relying on average multiples from the last 3–5 years can be misleading, as those years saw unusually high valuations.”

In short, FIIs may be nibbling, but they’re nibbling smart. The age of lazy smallcap bets may be behind us. If you're building a watchlist based on FII moves, keep your eyes wide open—and a magnifying glass on earnings, governance, and valuation.

(Data: Ritesh Presswala)