FPIs exercise caution in Indian IPO market amidst volatility in 2025

ET Intelligence Group: Foreign portfolio investors (FPIs) are treading cautiously in the domestic primary market amid high market volatility and the slower pace of initial public offerings (IPO), shunning the euphoria of 2024.

They have invested just over $1.8 billion (Rs15,864 crore) in IPOs in the calendar year till May, compared with $4 billion (Rs33,487 crore) in the same period a year ago.

In calendar 2024, they pumped in a record $14.5 billion (Rs 1.2 lakh crore) as an all-time high of 178 companies raised primary equity through IPOs and qualified institutional placements (QIPs).

Agencies

Selective Approach

So far in 2025, 15 companies have launched IPOs, nearly half the 29 that hit the primary market in the year earlier period.

However, the aggregate ₹27,467 crore raised is almost at par with the ₹27,651 crore raised in the first five months of 2024.

This shows the average IPO size in 2025 so far has nearly doubled from last year. In 2024, over 80 companies had raised nearly ₹1.5 lakh crore through the IPO route, making it a record year for primary fundraising. "Compared with early 2024, FPIs were selling in the secondary market (between October 2024 and March 2025) because of a host of domestic and international uncertainties," said Arka Mookerjee, partner, capital markets, JSA Advocates & Solicitors. "That risk-off sentiment rubbed off on the primary market too."

FPIs have become selective in the primary market, he said.

"In the past month, the primary market has seen FPI activity picking up especially in unique new-age tech companies where valuations are cheap, thanks to the stability in the secondary market. If it continues, foreign investors will be more encouraged to look at IPOs," Mookerjee said.

BULLISH ON SECONDARY MARKET
In contrast to the slack in the IPO market, FPIs showed heightened interest in the secondary market in May--their net investment at $2.1 billion was the highest in eight months.

India benefitted from the changing stance of foreign investors on emerging markets (EM).

In May, emerging markets excluding China saw the largest net inflow since December 2023 of $13 billion, with almost every market in the plus column, noted Macquarie Capital in a report, adding that India, Taiwan and Brazil reported a strong rebound.

Bulk and block deals worth ₹91,600 crore led by stake sales by investors in companies such as ITC and InterGlobe Aviation may have encouraged secondary market FPI buying.

In line with their foreign counterparts, domestic funds also remained bullish in Indian equities. They invested a net ₹49,108 crore in May compared with ₹18,063 crore in the previous month.

Despite a revival in FPI flows in April and May, their net position in Indian equities remained negative in the first five months of 2025 due to the heavy selling between January and March. FPIs were net sellers to the tune of $10.6 billion (₹92,490 crore) in the first five months of 2025.