A fourth of FPI inflows in 2023 went into primary markets, shows data

Foreign portfolio investors (FPIs) pumped in Rs 1.7 trillion into domestic stocks in 2023, one of the highest net inflows ever witnessed during a calendar year, of which 25 per cent went into the direct buying of stocks.

Data provided by depository NSDL revealed that Rs 44,950 crore of the total FPI flows last year went into primary issuances.

A large portion of the FPI investments through the stock exchange route went into block deals, thereby reducing the actual investments made via direct buying of stocks. Last year saw selldowns or block deals worth Rs 2 trillion.

The primary issuances comprise initial public offerings (IPO), qualified institutional placements (QIPs), and rights issues. NSDL provides separate data for FPI investment into primary and via the stock exchange route.

Investments through block deals which are done on the stock exchange platform form part of the stock exchange flows.

During the last two calendar years, FPI flows into the primary markets were much higher than through the stock exchange route.

In 2022, the net investments of FPIs in the private market were positive even though the flows to the secondary market were negative.

In 2021, the net flows through FPIs were net positive, mainly due to robust buying from the primary markets.

Market players said the robust flows from domestic and foreign investors must be met with new paper supply to keep the valuations in check. India remains an outlier in a challenging global backdrop.

Given the high growth prospects of our economy, we expect $25 billion of net inflows from FPIs and domestic institutional investors (DIIs) each.

This gush of supply has to be met by fresh paper issuance.

So, we will see a lot of QIPs, blocks, IPOs, and PE exits.

This will help absorb incremental flows coming into the market. Otherwise, if these funds start chasing the same stocks, it will lead to exorbitant valuations,  said V Jayasankar, managing director and member of the board of Kotak Investment Banking.

Analysts said the upward-trending domestic markets and the softening of US bond yields led to positive FPIs this year.

Encouraging post-listing performance for most IPOs kept sentiment buoyant.

The BSE IPO index, a gauge that tracks the progress of newly-listed stocks, gained 41.4 per cent last year.

FPIs get a large proportion of shares when they buy from primary markets or block deals directly rather than buying from secondary markets, which has an impact cost.

There is a greater incentive to participate whether it is primary equity or dilution by the company or through block deals, said Pranjal Srivastava, partner-investment banking, Centrum Capital.

Similarly, the participation in QIPs was due to the significant presence of banks in the pipeline.

About Rs 21,290 crore of the Rs 52,350 crore raised through QIPs came from banks.

The figure surges to Rs 26,690 crore if other financial institutions are included.

FPIs prefer largecaps and financials form a larger part of their portfolio, Srivastava said.

The trend of FPIs lapping up private issuances is likely to continue as the private issuance pipeline is robust.

Last year, smaller-sized issues were taking place.

We are expecting larger IPOs and QIPs this year, including the issuances of several new-age tech majors, Srivastava added.