Whalesbook
FPIs Bet Big on India's Primary Market Amid Secondary Sales
Foreign Portfolio Investors (FPIs) are demonstrating a nuanced approach to the Indian market in 2025, increasingly favouring primary market investments like Initial Public Offerings (IPOs) over direct stock purchases in the secondary market. This strategic pivot occurs even as Indian equities have lagged behind other emerging markets, and FPIs have executed a record sell-off in cash market shares.
The Core Issue
In the current calendar year, FPIs have net sold a staggering ₹ 2.34 trillion worth of shares in India's secondary market. This outflow is attributed to several factors, including comparatively higher valuations for Indian stocks versus emerging market peers and a temporary slowdown in corporate earnings growth. National Stock Exchange (NSE) data shows Nifty 50 net profit rose only 7.9% year-on-year in the September quarter of fiscal year 2026, with a notable 8.1% decline from the preceding quarter.
Primary Market Appeal
Despite the secondary market selling, FPIs have channelled ₹ 73,749 crore into India's primary market this year. This figure represents the second-highest inflow on record for primary market investments, surpassed only by the ₹ 80,314 crore recorded in 2021. Investment bankers highlight that the primary market offers FPIs access to India's growth story at 'cleaner entry points' and potentially 'better valuations' compared to the often expensive secondary market.
Historical Perspective
The trend of FPIs using primary markets to offset secondary market outflows is not new. From 2015 to the end of 2025, FPIs were net sellers in the cash market in six out of eleven years, cumulatively selling ₹ 2.91 trillion. However, they simultaneously invested ₹ 5.35 trillion in primary market purchases during the same period. This strategy has resulted in a total net buying of ₹ 2.44 trillion by FPIs in India over the past decade.
Market Dynamics and Expert Views
Raghav Gupta, joint chief executive at IIFL Capital, stated that secondary market selling should not be mistaken for a loss of confidence, as FPIs are 'still voting for India through the primary market.' Vikas Khattar, managing director at Ambit Group, echoed this sentiment, describing it as a 'game of rebalancing.' He noted that relative valuations in the secondary market encourage profit-taking, while IPOs provide opportunities to build large positions at favourable prices. This year's record fundraising of ₹ 1.76 trillion through 103 IPOs has clearly attracted significant FPI participation. Prominent FPIs like Morgan Stanley, Goldman Sachs, and Nomura participated as anchor investors in Tata Capital's ₹ 15,511.87 crore issuance, the year's largest. BlackRock and wealth funds from Singapore, Norway, and the UAE also invested in LG Electronics India's ₹ 11,607.01 crore Offer for Sale.
Global Context and Future Outlook
India's equity market performance in 2025, with a 4.8% return (through November), trailed significantly behind China's 33% and South Korea's 78% returns, as reported by MSCI. The US market also yielded a stronger 17.74%. This relative underperformance prompted tactical reallocation by foreign investors. IIFL Capital's Gupta anticipates FPI interest in India's primary markets to continue growing next year, focusing on manufacturing, financialization, and domestic consumption themes. Ashish Gupta, chief investment officer at Axis Mutual Fund, believes IPO interest will sustain due to listings of companies in new business lines and attractive valuations.
Impact
This continuous influx into primary markets bolsters India's capital formation, providing essential liquidity for companies and supporting their growth ambitions. It ensures that despite secondary market volatility, India remains an attractive destination for long-term investment capital channeled through IPOs and other primary offerings.
Impact Rating: 8/10
Difficult Terms Explained
- Foreign Portfolio Investors (FPIs): Individuals or institutions that invest in a country's financial assets from abroad.
- Primary Market: Where securities are created and sold for the first time, such as in an Initial Public Offering (IPO).
- Secondary Market: Where investors trade securities that have already been issued, like on a stock exchange.
- Initial Public Offering (IPO): The process by which a private company first sells shares of stock to the public.
- Emerging Markets (EM): Developing economies that are experiencing rapid growth and industrialization.
- Valuations: The process of determining the current worth of an asset or company.
- Earnings Growth: The increase in a company's profits over a specific period.
- Fiscal Year (FY): A 12-month accounting period used by companies and governments.
- Offer for Sale (OFS): A method allowing existing shareholders, typically promoters, to sell their shares to the public.
- Anchor Investors: Large institutional investors who commit to buying a significant portion of shares in an IPO before it opens to the public, providing early confidence.