Shareholding moves in Q4: Did retail investors' small-cap love fizzle out?
In the latest edition of our shareholding series, we delve into the fortunes of the market's underdogs – the small-cap stocks that often captured the hearts of individual investors.
After two blistering years of runaway gains, small-cap stocks finally met their reckoning in Q4FY25. As markets wobbled under global pressures and stretched valuations, retail investors and foreign funds beat a tactical retreat while domestic mutual funds doubled down, scooping up discounted shares, Mint's shareholding analysis showed.
Retail pullback, mutual fund contrarianism
Retail investors—those holding shares worth up to ₹2 lakh—reduced their stakes in 51.5% of the 932 small-cap companies listed on the BSE SmallCap index. Foreign portfolio investors (FPIs), often seen as sentiment drivers, also pulled back, trimming exposure in 53.5% of these stocks.
But while individuals and foreign investors hesitated, domestic mutual funds stood firm, increasing their holdings in 41% of small-caps. This divergence raises a key question: Were retail investors spooked by the quarter’s turbulence, or did they simply chase safer havens?
"Many retail investors treated small-caps as 'get-rich-quick' tickets, piling in without fully understanding the risks," explains Anand K. Rathi, co-founder of MIRA Money. "But by late 2024, reality hit—earnings couldn’t justify sky-high valuations. Stocks plunged 30-50%, and inexperienced investors, often lacking deep research, sold in panic."
Also read Q4 shareholding moves: Institutional appetite for post-correction mid-caps grows
“While retail investors fled, mutual funds stayed put. "Fund managers invest after rigorous analysis," says Rathi. "They understand volatility comes with the small-cap territory and trust the long-term fundamentals."
A year of rising, then recoiling
Despite the Q4 jitters, zooming out reveals a more tempered picture. Over the past 12 months, retail investors have actually grown their share in small-caps by 140 basis points, from 15% to 16.4%. But the momentum has clearly slowed, with a 10-basis-point fall sequentially.
Mutual funds have increased their exposure by 40 basis points (bps) in small-caps over the year, while FPIs stakes inched up just 10 bps and showed zero movement in Q4. The slowdown, especially on the retail front, underscores caution rather than capitulation.
Valuations cool off, but caution prevails
The recent market correction brought some much-needed sanity to overheated valuations. The BSE SmallCap index, after tumbling 16% in the March quarter, now trades at a price-to-earnings (P/E) ratio of 28.6x—well below its five-year average of 44x. While that may comfort value seekers, analysts caution against getting too excited.
Also read Shareholding moves in Q4: Retail investors jump ship in choppy waters
“Corrections in 2025 have helped cool speculative froth in small-caps," said Gaurav Garg, research analyst at the Lemonn markets desk. “But many stocks still appear overvalued when you consider the tepid earnings growth.
This is the sixth part of a series of data stories on the latest shareholding pattern. Read previous parts of our shareholding series here.
topics
