Data Focus

Investment in IPOs accounted for 74% of FPI flows in 2021

NARAYANAN V Chennai | Updated on August 31, 2021

Investment through the primary market exceeded the secondary market in 5 out of eight months including in August

Foreign portfolio investors (FPIs) have clearly been caught by the IPO frenzy in India. This is evident from their investment trend in Indian equities over the last eight months.

According to depositories data, FPIs’ net investment in Indian equities between January 1 and August 30 stood at ₹49,403 crore. Of the total inflow, over 74 per cent or ₹36,577 crore came through the primary market route as against an investment of ₹12,826 crore via stock exchanges. In fact, investment through the primary market exceeded the secondary market in 5 out of eight months including in August.

VK Vijayakumar, Chief investment Strategist at Geojit Financial Services said, “FPIs were sellers in Indian equity to the tune of ₹11,308 crore in July. In August too FPIs have net sales in the cash market. The August figures are positive only if we include the FPI investment in the primary market. The FPI selling in equity appears rational in this overvalued market, where there is no margin of safety.”

Also read: FPIs pump in ₹7,245 cr in August so far amid positive economic sentiments

FPI inflows through primary market includes investments in initial public offering (IPO), qualified institutional buying (QIB) and rights issue “The primary market has been seeing noticeable traction in the last one year and nearly 38 IPOs got listed on the exchanges. The majority of the companies were from online service, chemical, FMCG and pharma space,” said Ajit Mishra, VP- Research, Religare Broking Ltd.

Prior to the current calendar year, the quantum of FPI investments through the primary market exceeded the secondary market in 2017, which is considered to be a golden year for IPOs in India. The year saw over 150 IPOs with India Inc collectively mopping up around $11.6 billion, according to an EY report. In 2018 also, FPI inflows through the primary market stood at ₹18,761 crore against an outflow of ₹51,774 crore from the secondary market.

The year 2021 already has seen 38 mainboard IPOs and with companies raising nearly ₹72,000 crore including highly popular IPOs like Zomato’s ₹ 9,375 crore issue and ₹7,735 crore IPO of PowerGrid InvIT, the infrastructure investment trust (InvIT) among others.

With many more IPOs to hit the market including the much-anticipated public issue of Life Insurance Corporation (LIC), ₹16,600 crore issue of Paytm, FPI interest is likely to be anchored around the primary market. “We feel FPIs are taking a cautious stance due to premium valuations. Also, the second wave of Covid impacted companies’ performance which further capped their participation. Going ahead, further unlocking of the economy, the pace of vaccination drive and recovery in the earnings would again prompt their participation in the secondary market, without hurting their inflows in the primary space,” Religare Broking’s Mishra said.

A recent Bloomberg report also said that China's crackdown on technology companies is prompting global investors to look for new opportunities across Asia, contributing to a record jump in IPOs from India to South Korea that shows few signs of slowing.

Published on August 31, 2021

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