FIIs and MFs couldn't get enough of these 13 smallcap counters in FY25

In a market where smallcaps have lately been partying like the bear market is over, there’s a basket of 13 counters where smart money has been showing serious interest. Foreign institutional investors ( FIIs) and mutual funds (MFs) have raised their stakes in these stocks consistently in all the last four quarters of FY25.

Names like Archean Chemical, Tilaknagar Industries, Paradeep Phosphates, and Pokarna may not headline your average portfolio, but they’ve drawn sustained love from both domestic and foreign big guns, the kind of alignment that tends to spark serious investor curiosity, if not FOMO.

“Consistent promoter and institutional buying can be a valuable indicator in identifying fundamentally strong companies, as it reflects confidence from big players,” Raj Gaikar, Research Analyst at SAMCO Securities, told ETMarkets.

But don’t confuse confidence with certainty as interest of big boys doesn’t guarantee future performance.


What the Data Screams


The most striking name on the list? Pokarna. The engineered stone and apparel play has seen MF holding jump from 7.45% to 11.77%, while FIIs have quietly crept up from 4.27% to 6.60%. The stock has rewarded the conviction with 108% return over the past year.

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Close behind is Paradeep Phosphates, where MFs now own nearly a quarter of the company (24.06%) and FIIs have more than quadrupled their holding. Return? A juicy 98%.

On the other end of the spectrum, stocks like Redtape and Schneider Electric have also seen rising institutional stakes — but their stock prices have gone the other way, down 17% and 15% respectively, proving that not all smart money bets pan out equally.

But Here’s the Catch…


While the data makes a compelling case, analysts urge restraint. The sharp rebound in smallcaps this year — driven more by momentum than earnings — has pushed valuations to lofty territory.

“The recent sharp recovery in smallcap stocks appears driven more by momentum than the fundamentals. While the rally reflects improved sentiment, valuation comfort remains limited across the segment. Many smallcaps are now trading at elevated multiples without corresponding earnings support, raising concerns about sustainability. At current levels, the risk-reward profile is skewed, and valuation wise Nifty small cap index is still trading above its 5 year median price to earnings and price to book multiple,” Gaikar warns, suggesting investors to wait for more reasonable valuations to arrive before reconsidering smallcap allocations.

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Adding a further note of caution is Krishnan VR, Chief of Quantitative Research at Marcellus: “Within equities, we are cautious on small and mid-caps allocation as index valuations in the space are still above historical averages, especially, after the recovery we have seen over the last one month or so.”

So, Should You Dive In?


Not so fast. Gaikar suggests combining institutional holding data with a deep dive into company fundamentals like debt levels, revenue/PAT growth, and relative valuations before making any calls.

Valuation comfort, he insists, is critical as comparing P/E and P/B multiples against sector peers and historical norms ensures a better entry point and margin of safety.

“To make informed and prudent investment decisions, it's important to look beyond just who is buying the stock. Investors should combine this data with an analysis of the company's financial health and valuation to get a complete picture before investing,” says the analyst.

(Data: Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of The Economic Times)