FPIs exit secondary market in July, but stay active in IPOs. What's fueling the shift?

Economic Times

20-07-2025

Foreign portfolio investors (FPIs) have turned net sellers in India's secondary markets in July, offloading over Rs 10,000 crore in equities amid valuation concerns and underperformance. However, their primary market investments remain strong, indicating a shift in strategy. Despite near-term caution, FPIs continue to tap IPO and QIP opportunities, reflecting selective optimism toward Indian equities.
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Foreign portfolio investors (FPIs) have turned net sellers in Indian equities this July, but their activity in the primary market remains strong — highlighting a strategic shift amid concerns over valuations and the relative underperformance of Indian equities.According to data from NSDL, FPIs sold equities worth Rs 10,775 crore through the secondary market between July 1 and July 18, 2025. However, during the same period, they invested Rs 5,251 crore in the primary market, mainly via initial public offerings ( IPOs ) and qualified institutional placements (QIPs).Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services , said this trend reflects a valuation-sensitive approach by foreign investors.'The important takeaway from this dualistic behaviour of FPIs is that whenever valuations get stretched in the secondary market, they sell — but consistently buy in the primary market (QIP), where valuations are fair,' Vijayakumar said.'So long as valuations remain elevated, this trend will continue,' he added. 'India's underperformance relative to other emerging markets and the MSCI EM Index may also have contributed to FPI selling through the exchanges.'Vijayakumar pointed out that for the calendar year 2025 up to July 19, FPIs have sold equities worth Rs 1.10 lakh crore in the secondary market, while investing Rs 27,239 crore in the primary market. Despite the outflows via exchanges, their continued interest in new issuances suggests that FPIs are not exiting Indian equities entirely, but are reallocating their exposure based on value and return potential.Meanwhile, after rallying over 15% between March and June, Indian equity markets have taken a breather in July. So far this month, the Sensex and Nifty have declined more than 2%, weighed down by weaker-than-expected earnings from key financial and IT companies, as well as global trade uncertainty.On Friday, July 18, the Nifty50 slipped 0.57% to close at 24,968, while the BSE Sensex fell 0.61% to settle at 81,757. The indices also logged their third consecutive weekly loss, with the Nifty50 down 0.7% and the Sensex losing 0.9% for the week.Private banks led the sectoral declines, falling nearly 2% for the week, followed by losses in financials and IT, which were down 1.1% and 1.5%, respectively. Axis Bank shares tumbled 5.2% on Friday and 6.3% for the week after posting a surprise drop in quarterly profit. HCLTech, India's third-largest IT services firm, also fell 5.5% for the week after it cut its full-year operating margin forecast.Investor focus now shifts to the upcoming earnings season and potential developments in India-US trade talks ahead of the August 1 deadline. Earlier this week, US President Donald Trump said a deal with India is 'close,' which could lend some support to market sentiment.For now, FPI data underscores a cautious yet opportunistic approach. While the secondary market may remain under pressure due to elevated valuations and global headwinds, sustained activity in IPOs and primary issuances could continue—particularly if pricing remains attractive.