FPIs keep faith with India via primary route
Although FPIs sold shares in cash markets in six of the eleven years through 2025, their interest in IPOs has resulted in them being overall net buyers of domestic shares totalling ₹2.44 trillion since 2015.
Despite domestic equities becoming the worst-performing among emerging markets in 2025, foreign portfolio investors (FPIs) have continued to invest in India through its primary markets, and the trend is expected to persist next year.
Investment bankers and money managers have attributed this trend to FPIs' conviction in the country's long-term structural growth prospects, even as the cohorts tactically reduce their cash market exposure due to a range of factors, including softer US interest rates and a slowdown in earnings growth.
While FPIs have net sold a record ₹2.34 trillion of cash or secondary market shares this calendar year, following steeper valuations compared to emerging market (EM) peers amid an earnings growth pause, their purchases through the primary route at ₹73,749 crore this year have been the second-highest, only to the record ₹80,314 crore inflows in 2021.
This bullishness on India is also evident historically. From 2015 to the end of 2025, FPIs have been net sellers six out of 11 times in the cash market. Their cumulative net cash sales during this period totalled ₹2.91 trillion.
However, they offset these outflows through ₹5.35 trillion in cumulative primary market purchases, resulting in a total net buying of ₹2.44 trillion ( ₹5.35 trillion minus ₹2.91 trillion) by FPIs over the past 11 years.
"Secondary market selling should not be mistaken for loss of confidence, as FPIs are still voting for India through the primary market," said Raghav Gupta, joint chief executive, IIFL Capital.
While Nifty 50 net profit rose 7.9% year-on-year (y-o-y) in the September quarter of the current fiscal (FY26), it declined 8.1% from the preceding quarter due to notable profit declines by industrials and financials, per National Stock Exchange (NSE) data.
Valuation gap
Accompanied by relatively costlier valuations, with the Nifty trading at 18 times FY28 earnings (within a 16-20 times historic range), this has resulted in increased sales by FPIs in cash markets this year.
However, explaining the logic behind the FPI preference for initial public offerings (IPOs), Gupta said, "Primary markets allow FPIs to access India’s growth at cleaner entry points, better valuations and with longer-term conviction, which is very different from how secondary market allocations are managed."
"It is a game of rebalancing," agreed Vikas Khattar, managing director, co-head of Investment Banking and head - Equity Capital Markets, Ambit Group.
"Relative valuations in the secondary market have encouraged investors to take money off the table. Besides, IPOs provide these investors with an opportunity and a pricing benefit to build large positions, and hence we have seen them coming in droves. It is evident that in years where large IPOs have hit the market, the FPI participation has risen," Khattar said.
For instance, the current year, through 30 December, which has seen a record fundraising of ₹1.76 trillion by 103 companies that launched initial public offerings per PrimeDatabase, has attracted primary market inflows of ₹73,749 crore from FPIs.
Key FPIs who participated as anchors in Tata Capital's October issuance, the year's largest at ₹15,511.87 crore, included Morgan Stanley, Goldman Sachs, and Nomura. LG Electronics India, which raised ₹11,607.01 crore through the offer for sale route, attracted the likes of BlackRock and wealth funds from Singapore, Norway, and the UAE.
- Despite selling in 6 of the last 11 years in the cash market, FPIs are net buyers of ₹2.44 trillion since 2015 due to significant IPO participation.
- FPIs net sold a record ₹2.34 trillion in the secondary market but bought ₹73,749 crore in the primary market in 2025 (until 26 December).
- High secondary market valuations and a sequential profit dip of 8.1% q-o-q drove the sell-off.
- Global giants like BlackRock, GIC, and Goldman Sachs are using the primary route to bypass the ‘expensive’ tag of listed stocks.
- India’s 4.8% return in 2025 significantly trailed China and South Korea, prompting a tactical reallocation.
Structural bullishness
IIFL Capital's Gupta believes that FPI interest in India's primary markets will continue to grow next year, particularly in manufacturing, financialization, and domestic consumption themes.
Ashish Gupta, chief investment officer of Axis Mutual Fund, believes that FPI interest in IPOs will sustain itself due to the listing of companies in new lines of business and those with more attractive valuations than their existing listed peers.
One of the key reasons for FPI outflows was the relative attractiveness of other emerging markets. While the MSCI India Index generated a gross return of only 4.8% in the year through November, the MSCI China and MSCI South Korea indices delivered gross returns of 33% and 78%, respectively, over the same period, according to global index provider MSCI.
The US market also delivered a stronger return than India, at 17.74%, thanks to the US Federal Reserve cutting interest rates three times to a range of 3.50-3.75% from 4.25-4.50% at the beginning of the year. This drove foreign investor outflows from riskier India to the safety of the US dollar.
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