Foreign Investors Shift Focus to Primary Market

By Patturaja Murugaboopathy and Gaurav Dogra

(Reuters) – Foreign investors are unloading expensive Indian stocks and shifting towards new listings in primary markets for cheaper exposure and better returns.

This selling is driven by profit booking as Indian stocks hit record highs, with valuations exceeding many major stock markets.

Investors are now investing in initial public offerings (IPOs), which offer lower valuations and reduced competition for stocks.

So far, foreigners have sold a net $3.42 billion in the secondary market while purchasing $1.47 billion through primary market issuances this month, according to India’s Central Depository Services Ltd.

A report from Societe Generale indicated that foreigners have acquired over $6 billion in stocks through the primary market this year, the highest since 2021.

“Foreign investors are shying from deploying funds into the secondary market for the long term and see better and faster return prospects in the primary market,” stated Rajat Agarwal, Asia equity strategist at SG.

The decrease in foreign investments in the secondary market is attributed partly to moderating earnings growth prospects.

India’s NSE Nifty 50 index has risen 14% this year, with the 12-month price-to-earnings ratio for its large-and-mid-cap stocks at 24 times, the highest among major global markets, according to LSEG data.

Conversely, the Indian primary market has thrived, with IPO listings reaching $7.3 billion this year, the highest in Asia, exceeding China’s $5.1 billion, as per Dealogic data.

Foreign investors are attracted by the relatively cheap valuations of stocks in primary markets.

Jon Withaar, head of Asia Special Situations at Pictet Asset Management, mentioned that valuations tend to be lower in primary markets due to reduced competition from retail, index, ETFs, and various institutional investors.

“Companies offering IPOs or rights issues often price their shares conservatively to ensure a successful launch and attract more investor interest,” said Michael Collins, CEO of WinCap Financial.

This lower valuation may present an opportunity for foreign investors who believe in the long-term growth potential of these companies.

With the Fed likely to lower interest rates and investors seeking higher returns in riskier markets, analysts predict that foreigners will continue to pursue this method to invest in Indian stocks.