Foreign portfolio investors are now reportedly turning their gaze to the primary market in India. According to news reports, FPIs have invested over Rs 46,000 crore in the primary market thus far in 2021.
Data from reports suggest that FPIs have collectively invested over $2 billion in three leading initial public offerings (IPOs) by payments platform Paytm, insurance marketplace policy Bazaar and cosmetics and fashion platform Nykaa. As per reports, while FPIs have invested Rs 1570 crore in Nykaa, they have pumped in Rs 1,412 crore in the online policy marketplace, Policybazaar. Further, reports also show that FPIs invested nearly Rs 2800 crore when the food delivery platform Zomato issued its initial public offering earlier on.
The IPO market in India has seen 52 companies raising over Rs 1.08 lakh crore by way of public issues in the calendar year 2021. Last calendar year, 15 firms raised Rs 26,600 crore in comparison, according to data. Also reports suggest that foreign portfolio investors accounted for 55 per cent of the IPO investments in 2020.
According to reports, 35 firms have planned to raise Rs 80,000 crore through their initial public offerings in the third quarter of fiscal year 2022. As many as 64 firms have filed their draft red herring prospectus, as per data.
From secondary to primary market
Depository data says that the net investment of FPIs in Indian equities in the period between January 1 and the end of August 2021 was over Rs 49,400 crore. Out of this inflow, more than 74 per cent of investment amounting to Rs 36,577 crore was through the primary market, vis-a-vis the investment in the stock market worth Rs 12,826 crore. Before this calendar year, the last time the amount of FPI investment via IPO exceeding the secondary market was in 2017.
It may be recalled that foreign portfolio investors have been on an exit phase from the Indian stock markets during October, when they withdrew Rs 25,572 crore from equities excluding IPOs. Foreign portfolio investors turned sellers in India’s equity markets for the month of October and also for the first fortnight of November 2021. In the first half of the current month, FPIs have withdrawn near Rs 949 crore, according to depository data.
One of the reasons attributed to the FPI withdrawal from the stock markets is the concerns over high valuations of Indian equities, which have been trading at all-time peaks. Experts note that foreign portfolio investors may have opted to book profits, which has been reflected in the trend of flows over the recent past. Also, concerns over inflationary tendencies and an increase in oil prices may have led to the FPI outflows from the stock markets, experts point out. This FPI outflow from the Indian stock exchanges may have led to the foreign portfolio investor inflow into the primary markets in India.
In the fiscal year 2021, India had seen strong FPI inflows into its equity markets, attracting Rs 2.74 lakh crore. Also, 26 per cent of the overall FPI inflows into equity for the last three decades was seen in the fiscal year 2021, on the back of the benchmark BSE and NSE indices registering strong growth and recovering from the lows of March 2020.
The FPI participation in India’s primary market has been aided by capital markets regulator, which has in the recent past, relaxed several norms to boost investment. Recently, foreign portfolio investors have reportedly sought SEBI to increase the ceiling applicable for anchor investors. Anchor investors are institutional investors who get preferential share allotment before a company lists. As per SEBI norms, a company is allowed up to 15 anchor investors for the sale of shares worth the first Rs 250 crore. Further, 10 anchor investors can be added for the next set of Rs 250 crore. FPIs have sought all funds of a parent institution as one anchor investor rather than taking every fund of the same as a different entity. This comes at a time when several IPOs have been lined up for the December quarter.
Although FPIs have been net sellers for the month of October and early November from India’s secondary markets, the primary market data shows that FPIs have invested over Rs 46,000 crore into the IPO market in the calendar year 2021.
What is the primary market?
The primary market is where securities are created for the first time to be sold to investors. It is the market where the issuer company issues its shares for the public.
What is an IPO?
An IPO is an initial public offering made by a private company; it is the process in which a company offers its shares to the public by way of new issuance in order to raise funds.
What is the share of foreign portfolio investment in India’s IPO market thus far this calendar year 2021?
Foreign portfolio investors have pumped in over Rs 46,000 crore into the IPO market in the calendar year 2021 thus far.