FIIs Split: IPO Frenzy Meets Secondary Market Exodus in India
Overview
Foreign investors are pouring billions into Indian IPOs while aggressively selling shares in the secondary market. This capital flow dichotomy has seen foreign ownership of listed companies hit a 15-year low, with domestic institutions stepping in to fill the void.
Foreign Capital's Indian Equity Riddle
Foreign institutional investors (FIIs) are navigating Indian equities with a starkly divided approach. Over the past year, they funneled approximately ₹73,900 crore into the primary market, yet simultaneously divested a staggering ₹2,40,800 crore from the secondary market. This strategy highlights a significant preference for new listings over established ones.
Sectoral Shifts Reveal Caution
Selling pressure was most acute in heavyweight sectors. Banking, Financial Services, and Insurance (BFSI) led the exodus with outflows totaling $1.164 billion. Consumer goods, pharmaceuticals, power, capital goods, automotive, and real estate also experienced notable foreign investor sell-offs. Conversely, select areas like services, metals, oil & gas, and information technology saw modest inflows, indicating a selective, cautious approach.
Ownership Landscape Transforms
The sustained retreat of foreign capital is dramatically reshaping India's equity market. As of September 2025, foreign portfolio investors (FPIs) held just 16.9% of NSE-listed companies, the lowest level in over fifteen years. This downtrend, accelerating since early 2023, saw a further 63 basis point decline in FPI ownership in the first half of FY26.
Domestic Investors Consolidate Grip
Domestic institutional investors (DIIs), including mutual funds, banks, and insurers, have capitalized on this shift. For the fourth consecutive quarter, DIIs now hold a larger stake than FPIs, a reversal not seen in two decades. Mutual funds, powered by consistent retail participation, now own a record 10.9% of NSE-listed firms, boosting overall domestic institutional holdings to new heights.
