Foreign funds grow picky on Indian IPOs as domestic money steps up

Foreign portfolio investors are turning selective about India's initial public offerings, with their share of anchor investments dropping to a five-year low of 36.16% this year compared to a peak of 62.75% in 2021. High valuations, weak market performance, and a global shift toward artificial intelligence are driving this caution, while the previous low was 37.85% in 2022. Overseas investors' share of total IPO fundraising has also more than halved from 2021 to 11.61% so far this year.

Domestic Shift

Domestic institutional investors are stepping in to take the place of foreign funds in anchor books. Mutual funds and insurance companies are emerging as key sources of capital, reducing reliance on overseas money. Of 104 issues entering the primary market this year, raising a combined 1.55 trillion rupees, anchor investors contributed 49,771 crore rupees, while foreign portfolio investors accounted for just 17,998 crore rupees. In 2021, total funds raised stood at 1.19 trillion rupees, with an anchor book of 46,312 crore rupees where foreign investors contributed 29,059 crore rupees.

Market Pressures

Foreign investors are also pulling back from the secondary market, with the Nifty 50 declining about 12% this year due to geopolitical tensions, high crude prices, rising global bond yields, a stronger US dollar, a weaker rupee, and high valuations. Foreign portfolio investors have remained net sellers in equities with outflows hitting 2.95 trillion rupees this year according to National Securities Depository Limited data. However, their primary market net investments reached 68,763.15 crore rupees so far this year, showing they remain selective rather than completely absent.

Jio Platforms IPO

Large offerings continue to draw foreign interest, with the recent Jio Platforms public offering attracting over 25 billion dollars in anchor bids and allotting shares worth more than 8,100 crore rupees to anchor investors. Domestic mutual funds secured shares worth 2,785 crore rupees making up 34.34% of the anchor book, while life insurers and pension funds received 1,090 crore rupees or 13.44%. Overseas participants included BlackRock, Fidelity, Capital Group, JPMorgan Asset Management, Franklin Templeton, the Abu Dhabi Investment Authority, and the Monetary Authority of Singapore.

Context

Anchor investors are institutional buyers who commit funds a day before a public offering opens, helping build confidence and showing market demand. The growth of systematic investment plans and domestic financial savings has steadily built a powerful pool of local capital in India's financial markets.