Foreign portfolio investors (FPIs) have been net sellers of Indian stock markets for most of 2025, making it the worst year so far in terms of outflows.
According to NSDL data, FPI selloff swelled to ₹1,39,618 crore so far in 2025. After remaining net sellers in the Indian stock market for two months (July and August), the outflows continued with foreign investors offloading nearly ₹9000 crore worth of stocks on the first day of September.
However, interestingly, at the time when the Indian secondary market is reeling under pressure from this FPI selloff and Trump’s tariff tantrum, the primary market is enjoying strong interest from these foreign players.
Foreign portfolio investors (FPIs) have been net sellers of Indian stock markets for most of 2025, making it the worst year so far in terms of outflows.
According to Dr V K Vijayakumar, Chief Investment Strategist at Geojit Investment, FPIs have been sustained buyers in the primary market for a long time. This year, despite massive sales through the exchanges, they bought equity for ₹40,305 through the primary market.
But what’s behind this divergence?
IPOs vs stocks: Why are FPIs betting on primary market?
1. Valuation Game
Dr. Vijayakumar said that the trend of FIIs buying through the primary market route has been a long-term trend. This, he believes, has been driven by attractive valuations for certain IPOs. At the same time, the Indian stock market valuations have turned less favourable.
“Even in the months when FPIs sold heavily, like August, they have been steady and sustained buyers in the primary market. The reason for this dualistic behaviour is that IPOs are fairly valued, while in the secondary market, valuations are high and difficult to justify. This dualistic behaviour of FIIs – selling through the exchanges and buying in the primary market- will continue,” he added.
2. Tactical vs Fundamental Play
G Chokkalingam, Founder, Equinomic Research, believes that this FPI flow trend in IPOs is driven by tactical gains rather than by fundamentals.
“In the secondary market, FPIs do a lot of research: sectoral analysis, company analysis, quarterly expectations, valuations – all of it. That’s a different approach. But in the IPO market, there’s a tactical opportunity right now. So far, it’s been working well, and institutional players have made a lot of money. That’s what explains the different behaviours,” he opined.
According to data from Primedatabase, of the 38 mainboard IPOs in FY26 so far, only 10 have seen negative returns as of August 2025. And only one has seen double-digit losses.
Meanwhile, some 15 IPOs have given gains upwards of 20% and up to 87%, signalling the lure of IPOs.
3. Exposure To High-Growth Sectors
Harshal Dasani, Business Head, INVasset PMS, said this divergence underscores a nuanced portfolio recalibration rather than outright risk aversion.
“FPIs are de-risking from richly valued large-cap names, pressured by a stronger dollar, volatile bond yields, and tariff tensions, while simultaneously using IPO allocations to secure early exposure to companies aligned with India’s growth themes-renewables, tech-enabled services, and manufacturing,” he said.
According to Vipul Bhowar, Senior Director, Head of Equities, Waterfield Advisors, the diverging trend also indicates their ongoing investment in new themes and businesses, while they are reducing their exposure to sectors that are experiencing slower growth.”
Can FPI inflows into IPOs continue?
With some 80 IPOs in the pipeline, signals from Dalal Street suggest confidence in market depth and liquidity.
“However, incremental flows will hinge on global macro dynamics-dollar strength, US rate trajectory, and energy market stability remain key triggers for positioning. Valuation discipline will also be crucial,” added Dasani.
If global volatility recedes and earnings momentum persists, IPO participation could accelerate, reinforcing India’s status as a core allocation market, he said, adding that conversely, a risk-off cycle could temporarily narrow the foreign bid for new issuances.