Understanding FPI Trends: Equity Selling and Primary Market Investments in India

Indian stock markets faced continued pressure this week as the Nifty 50 index recorded its seventh consecutive week of losses, marking its longest downturn in six years. Concerns over persistently high crude oil prices, rising yields on US Treasury bonds, geopolitical tensions, and accelerating foreign portfolio investor (FPI) outflows contributed to the subdued market sentiment.

The Nifty 50 declined by approximately 0.88% over the week despite some late-week recovery triggered by easing oil prices and value-driven buying. However, the headline figures on FPI equity outflows conceal a more complex pattern of foreign investor activity.

While FPIs have been net sellers in the secondary equity markets, they have simultaneously maintained substantial investments in primary market offerings and demonstrated selective interest in Indian debt instruments. This dichotomy highlights a nuanced investor approach rather than a straightforward exit from Indian markets.

Dheeraj Gaur, Chief Investment Strategy Officer at Choice Wealth, pointed to provisional data from the National Stock Exchange (NSE) indicating that FPIs net sold Rs 11,490 crore in equities between September 21 and 25. In contrast, settled data from the depositories NSDL and CDSL suggested a net inflow of Rs 3,843 crore into equities during the same period.

This discrepancy arises largely from the strong FPI participation in the primary market, particularly on September 24, when Rs 5,515 crore flowed into initial public offerings (IPOs) and other fresh equity issues. Gaur explained that settled data showed FPIs sold about Rs 2,006 crore in secondary market equities but invested roughly Rs 5,848 crore in primary market opportunities during the week.

"Foreign investors are not uniformly exiting Indian equities," Gaur noted. "Instead, they are selectively reducing exposure to existing listed stocks while directing capital into targeted IPOs and new listings where valuation, scarcity, and liquidity conditions appear more favourable." This trend was clearly reflected in the recent NSE IPO, which was oversubscribed 5.7 times overall and saw the Qualified Institutional Buyer (QIB) segment subscribed 12.68 times. FPIs placed bids for over 140 million shares, underscoring their continued institutional appetite for primary market deals despite secondary market selling.

Turning to the debt market, settled data showed a net inflow of Rs 885 crore into debt instruments during the week. However, the composition of these flows was notable. The Fully Accessible Route (FAR) for government securities attracted net purchases of approximately Rs 2,912 crore, offsetting sales of about Rs 822 crore under the general debt route and Rs 1,205 crore under the Voluntary Retention Route (VRR).

Gaur remarked, "These figures indicate that foreign demand in Indian fixed income remains present but is increasingly sensitive to factors such as relative yields, currency risks, and the global interest rate environment."

V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, echoed this view. He observed that FPI flows shifted from positive inflows in July and August to sustained outflows in September, with equity outflows through exchanges reaching Rs 25,682 crore by August 25. Meanwhile, primary market investments by FPIs stood at Rs 8,551 crore during the same period.

Vijayakumar further highlighted that FPIs have been selling large-cap stocks but remain steady buyers in mid- and small-cap segments. He attributed this selective buying to FPIs chasing market momentum and taking advantage of attractive IPO valuations and returns.

Global factors continue to influence FPI strategies. The yield on the US 10-year Treasury bond remained stable on Friday after recent volatility triggered by hawkish Federal Reserve statements and stronger economic data. Oil prices also remain a key concern. Elevated crude costs pose challenges for India by impacting the current account deficit, inflation expectations, and the rupee exchange rate.

"Brent crude prices staying above $100 per barrel add pressure," Gaur said. Currency fluctuations also weigh on foreign investors. The rupee has hovered near the Rs 96 per US dollar mark, with the Reserve Bank of India reportedly intervening to prevent a breach of this psychological level.

"Even if returns in rupee terms are attractive, depreciation can significantly reduce dollar-denominated gains," Gaur added.

Looking ahead, the near-term outlook for FPI flows will likely depend on how key variables evolve. A combination of declining crude prices, stabilizing US Treasury yields, and a firmer rupee could encourage renewed interest in secondary equities. Conversely, further increases in yields or oil prices may prolong foreign selling pressure.

The current Rs 11,490 crore provisional equity outflow figure does not fully capture the complexity of foreign investor behaviour. The pattern reveals ongoing secondary market selling alongside strong primary market participation, selective debt purchases, and steady interest in mid- and small-cap stocks.

Gaur concluded that the next phase of foreign portfolio flows will be shaped by whether the interplay of US yields, crude oil, and the rupee stabilizes sufficiently to make Indian secondary equities appealing once again.

Disclosure: This article was authored by Kumar Gaurav, who is not a SEBI-registered Research Analyst or Investment Adviser. Neither the author nor their relatives hold any financial interest in the companies discussed as of the publication date. The views expressed are attributed to the respective SEBI-registered analysts or brokerages and do not represent those of The Economic Times Digital or the journalist. Readers are encouraged to consult original research reports and make investment decisions independently.