Watch the downstream flows of Gangetic investments

Mint

5 hours ago

Anyone who has seen the Ganga in the upper reaches of the Himalayas— especially its Bhagirathi portion on its way from Gangotri to Devprayag—and then its more expansive but slower flow in the lower Gangetic plains might struggle to believe that it is the same river. What starts as a sparkling gush of pristine water turns brown as it meanders its way to the sea.
Something similar is happening with domestic flows. The 'Gangotri' (or origin) of capital flows in India in recent years has been the humble but pure Systematic Investment Plan (SIP)—a simple yet powerful means of investment by which savers buy mutual fund units at predetermined intervals, such as every month or even week, so as to maintain the discipline of investing and benefit from the opportunity of less expensive purchases when the market falls. Investments through this route have grown vastly across the country.
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From a modest ₹3,000 crore per month in 2016 , when the Association of Mutual Funds in India (AMFI) started reporting this data, the figure has surged to over ₹28,000 crore: an annual figure of almost $40 billion. Jefferies research estimates that Indian public equity markets received inflows of $100 billion in 2024 and are on track to receive a similar amount this year as well.
In addition to SIP flows, investments made by the Employees' Provident Fund Organisation (EPFO) and the National Pension System (NPS) have added to this total. These steady inflows have underpinned the resilience of the Indian equity market in recent years, despite heavy intermittent selling by foreign funds.
At first glance, this consistent source of domestic capital appears to grant a major advantage to an economy in need of capital, especially when foreign investments, both direct and portfolio, have been feeble or in retreat. But the downstream usage of this torrent paints a different story. India has become a hotbed of initial public offerings (IPOs), with 91 mainboard offers that raised a record $19 billion in 2024. Despite sideways market movement this year, this trend has continued in 2025. A large portion of these IPOs have domestic institutions as subscribers, entities that are the main beneficiaries of these heavy retail flows.
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This would have been good for the Indian economy if the money thus raised was put to use in building new factories or on research and development (R&D). After all, the original purpose of capital markets is to make savers and borrowers meet.
However, as I noted in an earlier piece in Mint ('The IPO gamble: Why the odds seem stacked against investors', 13 July 2025), of the 275 IPOs since the pandemic, 101 had private equity owners selling stakes and repatriating proceeds back to their home countries. Moreover, of the $19 billion raised through IPOs in 2024, less than $8 billion was raised through primary offerings (i.e. with money put to use for business purposes), while the remaining provided an exit to existing investors.
The newest craze among well-heeled investors is to buy shares in unlisted companies that are headed for an IPO. Shares of National Stock Exchange (NSE) are the poster child of this trend. As per recent reports, the unlisted NSE already has over 150,000 shareholders, up from just over 1000 in 2021. The hope of most of these investors would be to sell their shares for a profit when the IPO takes place.
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Again, the bet is that the strong domestic flows will facilitate an IPO at a high valuation. This is notwithstanding the fact that recent IPOs such as of HDB Financial Services' and NSDL's listed at significant discounts to the prices at which their shares traded in the private market.
If we row further downstream, we enter the realm of private credit. Here, investors subscribe to a fund that lends money via debt or debt-like instruments for purposes that a bank generally would not. This includes lending to promoters of private entities, with their unlisted shares being put up as collateral. Private credit funds also lend for the purchase of land or for undertaking mergers and acquisitions.
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Private credit is lightly regulated and data is hard to come by, but it is estimated to be worth $25 billion in India and growing rapidly. If you trace the expected path for a private loan to be repaid or for the collateral to be enforced, more often than not, it will lead to a hoped-for IPO in the future. Again, the premise on which such a successful float relies is the domestic flow of funds.
Just like private equity, whatever new asset class institutions have spawned, high net worth individuals have followed with gusto. It is common practice for family offices to co-lend along with private credit funds, with promises of juicy coupons or high yields-to-maturity till the eventual blockbuster IPO. The Indian economy awaits a rise in private capital expenditure for a broad-based revival, which would hopefully lead to domestic savings getting channelled towards productive purposes. Meanwhile, those savings are finding their way into the hands of savvier investors who in a way are front-running the public floats.
The steady rise in household allocation to equities is a healthy trend, but too much of it is just going from one provider of capital to another. It is India's good fortune that the mighty Ganga is a perennial river, but not all rivers are. If domestic inflows were to slow significantly, the fragility of asset classes downstream would become apparent.
These are the author's personal views.
The author is the Managing Partner at Breakout Capital.