Foreign Portfolio Investors: FPIs bow to IPO allure, but walk out of secondary markets

ET Intelligence Group: A booming market for initial public offerings (IPO) continued to lure foreign portfolio investors (FPIs) in 2024 as they were net sellers of Indian equities in the secondary market amid rich valuations, sluggish demand and slowing GDP growth.

Given the sustained flow of companies filing draft red herring prospectus (DRHPs) with the markets regulator as a part of the IPO launch process, the domestic primary market is likely to remain a major route of equity investment for foreign investors in 2025 as well.

In 2024, FPIs pumped ₹1.22 lakh crore ($14.5 billion) into the primary market, the most they’ve invested in IPOs and qualified institutional placements (QIPs), according to NSDL data. This more than offset their exit from the secondary market to the tune of ₹1.21 lakh crore ($14.37 billion), resulting in a net inflow of ₹426.9 crore ($124 million) for the calendar year.

This compares with the net total investment of ₹1.71 lakh crore ($20.74 billion) by FPIs in the previous year, the highest annual investment in domestic equities till date.

IPOs provide an efficient route for investment in new businesses as they are often launched at attractive valuations compared with listed peers.

In addition, a bulk investment in IPOs does not have any price impact, unlike a purchase in the secondary market.The domestic primary market reported a strong flow of new offerings in 2024. A record 90 companies raised over ₹1.6 lakh crore through the IPO route during the year. That broke the earlier record of 63 companies raising nearly ₹1.2 lakh crore in 2021. Trend of Past Decade
FPIs have shown a greater interest in the domestic primary market in recent years.

An analysis of their annual fund flow shows that they invested ₹4.6 lakh crore ($61,43 billion) at the aggregate level in the 10 years to 2024. Of this, three-fourths or ₹3.42 lakh crore ($43.43 billion) was invested in the past five years and 41% or ₹1.89 lakh crore ($22.84 billion) was invested in the last three years.

In December, FPIs invested ₹18,036.1 crore ($2.12 billion) in the primary market while selling ₹2,589.6 crore worth of equities in the secondary market. Their net total investment was ₹15,446.5 crore ($1.83 billion) for the month.

Domestic mutual funds continued to support equities in December. They had invested a net ₹14,467.3 crore as of December 20, taking the total net investment to ₹4.2 lakh crore in 12 months.