FIIs press the brakes on IPOs after selling shares worth nearly $3 bn in November

FII investments in October totalled Rs 19,842 crore across six IPOs, which raised Rs 38,686 crore. In September, FIIs invested Rs 11,172 crore in 12 IPOs with a combined value of Rs 11,058 crore

After being aggressive sellers in the secondary markets for the past month and November as well, foreign institutional investors (FIIs) appear to be pressing the brakes on investments in the primary markets as well.

Data shows that the share of FIIs in the cumulative bids in initial public offers (IPOs) launched in the current month till date is a mere 15 percent, significantly lower than September and October month's share of more than 100 percent and 50 percent, respectively.

In the current month till date, four IPOs — Swiggy, Sagility India, ACME Solar Holdings, and Niva Bupa Health Insurance — have collectively raised around Rs 18,534 crore. FIIs, however, have contributed only Rs 2,900 crore by way of bids, as per NSDL data.

In sharp contrast, FII investments in October totalled Rs 19,842 crore across six IPOs, which raised Rs 38,686 crore. In September, FIIs invested Rs 11,172 crore in 12 IPOs with a combined value of Rs 11,058 crore — FII investments were higher than the cumulative IPO size due to oversubscription in some of the public issues.

Rajesh Palviya of Axis Securities is of the view that the recent selling is due to the cautious approach among FIIs and hints at their current hesitation to participate in IPOs. It’s not a matter of IPO valuations or recent offerings being overpriced; rather, they appear focused on freeing up cash or adjusting their portfolio allocations, he says. FIIs typically engage in IPOs for long-term investments, not just for listing gains, and they secure substantial allocations via this route, he adds.

Analysts further believe that FIIs are reducing their investments in India and globally due to the recent shift in US leadership. With Donald Trump winning the US Presidential polls, his US-centric growth agenda, reflected in his speeches and body language, has raised uncertainty among FIIs about potential policy changes. As a result, markets globally are witnessing significant selling by FIIs, driven by concerns over how Trump’s policies may impact international investments.

For now, the FII strategy seems to be reducing positions while awaiting clearer policy direction from Trump. Once there’s more certainty on US policies, they may reassess and potentially resume investments, say experts.

Meanwhile, so far in November, FIIs have been net sellers at over Rs 26,800 crore in secondary markets after selling over Rs 1.1  lakh crore in October. Jayant Mundhra, an independent research analyst, believes that aggressive FII selling reflects India’s current economic challenges. Second-quarter earnings have shown weak profits, and the economy relies heavily on government capital expenditure (capex). However, capex spending has slowed—only 36% of the budget was utilised in the first half of this year compared to 49% last year. This slowdown is making India a less attractive investment destination compared to China, he says.

Experts believe that recent FII selling in India was also on the back of China becoming increasingly attractive for investors after years of underperformance, largely due to the recent $4 trillion stimulus package introduced by the Chinese government. This stimulus appears to have alleviated China's bad debt issues, improving the country's economic outlook compared to three or four months ago. With China now positioned as a lower-valuation, higher-growth economy, it has become a compelling investment choice, they say.