2 small caps pass our quality test. FIIs are buying both

Summary: Quality is scarce in the small-cap universe. So when we applied some rigorous filters, only two stocks could pass. But the bigger surprise is that both are attracting foreign institutional buying. Find them below.

The small-cap universe is where fortunes are made and lost. It is also where investors hunt for the next serious compounder.

But let’s be honest. With hundreds of listed small companies, finding the rare mix of quality, growth and reasonable valuation can feel like searching for a needle in a haystack.

That’s when tools such as Value Research Stock Screener are of immense use, to make a tedious task of filtering easy.

So we turned to our high-quality small-cap screener and used the following filters on the small-cap universe:

• Quality Score: More than 8
• Growth Score: More than 8
• Valuation Score: More than 5
• At least 10 years of operating history

These filters ensure that the companies pass rigorous checks on balance sheet strength, return ratios, earnings consistency and overall fundamentals. The 10-year history requirement filters out untested stories.

The result? Only two small-cap companies qualified. And both happened to belong to the financial services sector.

And then came the second layer. When we examined shareholding trends, both companies had seen an increase in foreign institutional investor ownership over the past year ended December 2025.

That combination, high stock scores and rising external institutional participation, is hard to ignore.

So here's a quick look at the two businesses:

1) Can Fin Homes

• 3-year annualised EPS growth: 18.9 per cent
• P/B ratio: 2.1 times
• Return on assets: 2.4 per cent
• Gross NPA ratio: 0.9 per cent in Q3 FY26
• FII stake: 13.2 per cent as of December 2025

Can Fin Homes is a deposit-taking housing finance company backed by Canara Bank, which holds a 30 per cent stake.

Its lending model is focused largely on salaried professionals, who accounted for 68 per cent of the loan book as of December 2025. This borrower profile has helped the company maintain strong asset quality. Gross NPAs stood at a low 0.9 per cent in Q3 FY26.

Over the past year, FII ownership has increased by 1.8 percentage points. That gradual rise suggests steady institutional interest in its housing-focused, relatively conservative model.

2) CSB Bank

• 3-year annualised EPS growth: 6 per cent
• P/B ratio: 1.5 times
• Return on assets: 1.2 per cent
• Gross NPA ratio: 1.96 per cent in Q3 FY26
• FII stake: 14.16 per cent as of December 2025

CSB Bank operates primarily in Kerala and Tamil Nadu and follows a largely asset-backed lending model.

Gold loans are its flagship product, accounting for 51 per cent of gross advances in Q3 FY26. These loans are secured against gold jewellery and typically cater to individuals, farmers and small business owners. The bank also has exposure to wholesale loans at 24 per cent of advances, along with SME and retail loans such as home and vehicle financing.

Its gross NPA ratio stood at 1.96 per cent in Q3 FY26. FII ownership has risen by 1.36 percentage points over the past year, reflecting incremental institutional confidence.

The takeaway

When you combine high quality, strong growth scores, reasonable valuations and a decade-long track record, very few small caps qualify.

The fact that only two companies passed the test underlines how rare that combination really is. But remember that a screener output is not a recommendation. It is only a starting point.

For investors looking to go beyond filters and into deeper analysis, curated research can make a difference. That’s where Value Research Stock Advisor comes in, identifying high-potential ideas through detailed fundamental work and long-term tracking.

Because in small caps, the real edge is not in finding more stocks but in finding the right ones early and understanding them well.

Try Stock Advisor today