Foreign Institutional Investors (FIIs) have significantly altered their positioning within the BSE 500 index over the last two quarters. Data as of late February 2026 confirms a sustained trend of stake reductions in 12 specific stocks, contributing to sharp price corrections and a shift in market sentiment. While the broader BSE 500 currently trades at a P/E ratio of 24.57, these underperforming counters have faced intensified selling pressure. Cohance Lifesciences has emerged as the most impacted, with its share price plunging approximately 75% from its 52-week high of 1,328 INR. Currently trading near 305 INR, the company has grappled with a 76% decline in net profit and a warning letter from the USFDA for its Hyderabad unit. FII holding in the firm has dropped as investors react to these regulatory and operational hurdles. Blue Jet Healthcare and Vedant Fashions (Manyavar) have similarly experienced price drops exceeding 50%. Blue Jet Healthcare, recently downgraded by major global brokerages, saw its stock slide to a 52-week low of 353 INR. Despite a robust ROCE of 39.8%, the stock has struggled with high volatility as foreign investors reduced their exposure to 1.14%. Vedant Fashions is currently trading at 424 INR, down over 50% from its yearly peak of 880 INR. The premium apparel retailer has seen its one-year return sink to -48.84% compared to a double-digit gain in the Nifty 50. High debtor days and a slowdown in sales growth have prompted institutional caution, with FIIs paring stakes amidst a wider sectoral rotation. Broader market activity in February 2026 shows FIIs as net sellers in the cash market, with outflows totaling roughly 1,374 crore INR by mid-month. This follows a heavy exit of over 41,000 crore INR in January. Domestic Institutional Investors (DIIs) have acted as a buffer, injecting 9,775 crore INR into the market this month to stabilize indices like the Sensex, which currently fluctuates around the 82,800 level. The exit from mid-cap and small-cap BSE 500 stocks is driven by a combination of high valuation premiums, global interest rate dynamics, and specific corporate earnings misses. While the structural growth narrative for India remains intact, the heavy institutional selling in these 12 stocks serves as a cautionary signal for retail participants regarding valuation sustainability in the current macro environment.