FII vs DII ownership: Bernstein bets against crowded trades—Reveals 4 attractive sectors

Bernstein said ownership trends remain an important indicator for identifying potential outperformers. Its historical analysis shows that stocks attracting the largest increase in institutional ownership have generally lagged the broader market, while under-owned stocks have generated excess returns. The report also updates its industry rotation strategy based on these ownership patterns.

“In our recent report, we made a case to add more Indian equities in the wake of the ongoing momentum unwind and better opportunities within India. In this report, we present an update on the most institutionally crowded stocks in India and the under-owned alpha opportunities,” Bernstein added.

Who owns more? DII ownership moves ahead of FIIs

As of the end of June, DIIs owned 18% of BSE 500 companies, ahead of 16.3% owned by FIIs.

During the quarter, FIIs reduced exposure across large-, mid- and small-cap stocks. DIIs increased their ownership in mid-caps, maintained broadly stable exposure in small-caps and reduced allocations to large-caps. Retail investors continued to reduce ownership in large- and mid-cap stocks while increasing their participation in small-caps.

Bernstein says retail investors remained the biggest investor class in Indian small-caps, owning 14.1%, compared with 11.3% for mutual funds and 10.2% for FIIs.

Investor ownership snapshot

Which sectors are FIIs, DIIs and retail investors buying?

The report highlighted distinct allocation trends across investor groups during the quarter.

FIIs increased their ownership in Energy excluding Reliance, where exposure rose to 14% from 11% in the previous quarter. Their holdings in Real Estate, Industrials, Utilities and Materials remained broadly unchanged, while exposure across most other sectors stayed below the 10-year average.

DIIs increased exposure to Health Care, Materials, Real Estate and Industrials, while reducing allocations to Consumer Staples, Technology, Consumer Discretionary and Financials.

Retail investors increased ownership in Communications, where exposure rose to 9.9% from 9.8%, and in Consumer Staples, where ownership increased to 4.4% from 4.1%. By the end of June, their highest ownership levels were in Consumer Staples (9.8%), Materials (7.5%), Technology (7.3%) and Energy (7.0%).

Sector allocation during the June quarter

Bernstein says under-owned stocks have generated stronger returns

Bernstein says ownership data has historically served as an indicator of both crowding and opportunity.

According to the brokerage, stocks where institutional ownership increased the most relative to their historical levels underperformed the broader market by 3.0% to 3.2% annually since 2006.

By contrast, stocks that remained under-owned relative to history, after excluding the least-owned 20%, generated 0.9% to 3.5% annual alpha over the same period.

“Institutional ownership changes can also be used to identify opportunities: stocks that are under-owned vs. history (after avoiding the least owned 20%), have historically generated 0.9%pa-3.5%pa alpha since 2006,” the report stated.

Bernstein added that the under-owned cohort has generated 1.7% alpha so far this year, while crowded stocks came under pressure only during the first quarter of 2026.

Industry rotation strategy points to 4 sectors

The brokerage also updated its industry rotation strategy using ownership trends.

According to Bernstein, a strategy of going long the three least crowded industries and short the three most crowded industries every quarter has generated 3.3% annualised returns since 2009.

The long side of the strategy has delivered a 15.5% compound annual growth rate, compared with 14% for the broader market and 10.3% for the short side. So far this year, the long-short strategy has gained 11.1%, while the broader market has declined 3.4%.

“Industry rotation strategy currently implies long Consumer Discretionary Services, Forestry/paper, Energy and Utilities while short Institutional Financial Services, Media, Industrial Services and Chemicals,” Bernstein said.

Bernstein’s latest sector positioning

Conclusion

Bernstein said  ownership trends continue to provide a useful framework for tracking changes in market positioning across investor groups and sectors. While DIIs extended their ownership lead over FIIs during the June quarter and retail investors continued to dominate the small-cap segment, the brokerage’s historical analysis indicates that heavily crowded trades have generally lagged the market, whereas under-owned stocks have generated stronger excess returns. 

Based on those observations, Bernstein continues to favour Consumer Discretionary Services, Forestry/Paper, Energy and Utilities in its latest industry rotation strategy while remaining cautious on Institutional Financial Services, Media, Industrial Services and Chemicals.

Disclaimer: This article reports on institutional ownership patterns and brokerage market commentary for informational and educational purposes only, and does not constitute individual financial advice or an investment recommendation. Investors should evaluate their risk profile and consult a qualified financial advisor or SEBI-registered expert before making any investment or sector allocation decisions.

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