Foreign portfolio investors (FPIs) are maintaining their confidence in India's growth story by actively participating in the primary market, even as they have reduced exposure in the secondary market in 2025. This nuanced approach reflects a belief in the long-term potential of the Indian economy, despite short-term headwinds.
In 2025, FPIs have net sold a record ₹2.34 trillion worth of shares in the secondary market. This outflow has been attributed to several factors, including stretched valuations of Indian equities compared to emerging market peers, a temporary slowdown in corporate earnings growth, volatile currency movements, and global trade tensions. Rising US bond yields, a stronger dollar, and geopolitical uncertainties have also contributed to the shift of global capital towards developed markets.
Despite the record sell-off in the secondary market, FPIs have invested ₹73,749 crore in the primary market through IPOs in 2025. This is the second-highest inflow on record, only surpassed by the ₹80,314 crore invested in 2021. This indicates that FPIs are drawn to fresh entry points, better valuation comfort and access to high-growth companies through the IPO route.
Investment bankers and money managers believe this trend indicates FPIs' conviction in India's long-term structural growth prospects. They are tactically reducing their cash market exposure due to factors such as softer US interest rates and slower earnings growth. Despite the challenges, the Indian IPO market has remained resilient, with Indian companies raising a cumulative total of 367 IPOs on the mainboard and SME segments, raising a total of $22.9 billion. This has helped the country to be ranked as one of the most active listing destinations in the world despite the low secondary-market visibility.
The Indian IPO market has been powered by significant participation from retail investors, who have invested ₹42,000 crore in mainboard IPOs in 2025, three times more than in 2023. Mutual funds, fueled by record SIP inflows, have also contributed significantly, with investments jumping to four times the 2023 levels. This strong domestic support has cushioned the impact of FPI outflows and highlights the growing engagement of Indian retail investors with the equity market.
Looking ahead, market participants expect FPI flows to turn sustainably positive in 2026. Factors such as nominal growth and earnings recovery, the potential closure of a trade deal with the US, and anticipated Federal Reserve rate cuts are expected to favor emerging markets like India. Domestic factors, including Indian earnings growth relative to peers, policy continuity, and reforms, particularly around the Union Budget, could also act as key triggers. However, uncertainty on the global macro front, particularly the trajectory of global interest rates and developments on tariffs, will continue to influence FPI behavior.
