FIIs quietly built stakes in 54 falling smallcaps last quarter

Foreign funds increased stakes in loss-making small-cap names even as they dumped 145 others, a split that reveals a deliberate value hunt, not indiscriminate buying.

Foreign institutional investors raised their holdings in 54 Nifty Smallcap 250 companies during the January–March 2026 quarter, every single one of them carrying year-to-date losses, even as the same set of funds quietly trimmed positions in 145 other small caps, according to data compiled from ACE Equity.

The split that tells the real story

The contrast is hard to ignore. On one side, foreign funds were cutting exposure to consumer tech plays, diagnostics names, and private lenders Urban Company, Dr. Lal PathLabs, RBL Bank, CarTrade, and Honasa Consumer. On the other, they were quietly accumulating battered capital goods stocks, infrastructure companies, and select financials. Not a reallocation, more like a deliberate repositioning inside the same asset class.

eClerx Services saw FII holding edge from 11.39% to 11.82% even as the stock declined approximately 31% over the past six months, per ICICI Direct data. IIFL Finance, off 31% from January, drew an increase from 27.77% to 28.16%. Devyani International, which runs KFC and Pizza Hut outlets across India and had shed 28% in the year, saw foreign ownership edge up from 5.77% to 6.13%. These aren’t rounding errors. At these valuations, adding to a position takes a view.

Where the sharpest accumulation happened

Source: ACE Equity | Nifty Smallcap 250 | Q4 FY26

The sharpest absolute moves came in Clean Science and Technology, where FII stake surged 3.37 percentage points in a single quarter to 13.38%, even as the stock shed only 7% for the year. IEX followed with a 2.74 percentage point jump to 14.16% on an 8% decline. Birlasoft saw 2.73 percentage points of incremental foreign buying despite being down roughly 15%. That’s not noise that’s accumulation with a purpose.

“The selloff in early 2025 driven by EM outflows, domestic valuation resets, and sector-specific de-ratings gave foreign funds a window to enter names they’d been watching. The accumulation pattern suggests a thesis on structural recovery, not just a price bet,” said a market strategist at a domestic institutional desk.

The Clean Science anomaly—biggest buy, smallest dip

Here’s the number that doesn’t fit neatly. Clean Science and Technology attracted the single largest FII addition in the entire cohort, 3.37 percentage points, yet it had fallen only 7% year-to-date. Every other name in the top five had dropped at least 8%, most considerably more. Foreign funds were not waiting for a deeper discount here.

The likely explanation sits in the financials. Clean Science operates in speciality chemicals with EBITDA margins in the 38–44% range across recent quarters, among the strongest in the sector per company filings and Q2 FY26 results published by Scanx Trade. After a two-year earnings downcycle driven by Chinese competition and global destocking, volumes have begun recovering. The performance chemicals segment’s share of revenue rose to 36% in H1 FY26, up from 30% the previous year, driven by HALS series products. FIIs appear to be positioning ahead of a full margin reversion, not reacting to price damage.

Capital goods and infra—the quiet theme

What stood out was where the buying was concentrated across the broader 54-stock cohort. Ircon International saw FII holding rise from 4.54% to 4.78% on a 15% YTD decline. Titagarh Rail Systems held at 10.67% from 10.66%, a marginal but deliberate hold during a 15% selloff. RailTel moved from 3.68% to 3.72% on a similar 15% loss. These are names tied directly to government railway and infrastructure capex, a pipeline that remained intact even as market sentiment around public spending deteriorated early in the year.

JK Tyre deserves a separate mention. A 1.67 percentage point FII stake increase in a tyre company that’s down 21% for the year isn’t something you see often. The conviction becomes easier to understand when you look at the Q3 FY26 earnings: EBITDA margins expanded 470 basis points year-on-year to 13.8%, PAT surged 3.7x to Rs. 209 crore, and the company posted its highest-ever quarterly revenue of Rs. 4,235 crore, per company filings. The merger of Cavendish Industries was completed the same quarter, adding further operational synergies. Foreign funds appear to be betting on continued margin delivery into FY27, not a recovery from distress.

The outlier: Zee Entertainment

Oddly, Zee Entertainment makes this list despite being down only about 2% year-to-date, barely a dip by the standards of this cohort. FII holding jumped 1.12 percentage points to 25.33%, one of the more aggressive additions for a stock that hadn’t actually fallen much.

The Sony arbitration overhang that had weighed on the stock for much of 2023–24 was fully resolved in August 2024, when both companies mutually withdrew all claims at the Singapore International Arbitration Centre and NCLT in a non-cash settlement with no outstanding obligations on either side, per Business Standard. That legal resolution removed a significant balance sheet risk. FII accumulation in Q4 FY26, more than a year after the settlement, may reflect a delayed re-rating of the stock now that the distraction is definitively gone, rather than any new catalyst. The core broadcasting business still faces structural audience erosion to streaming, so the buying is not a straightforward business quality call.