FIIs Pump $9.2 Billion into Indian IPOs While Pulling $39 Billion from Secondary Market

Foreign institutional investors (FIIs) have established a stark divergence in India's capital markets, pouring $9.2 billion (₹85,500 crore) into primary market offerings over the 12 months ending September 2026, even while offloading $39 billion (₹3.65 lakh crore) from secondary market equities.

The divergence, detailed in JM Financial’s FII Monthly Flow Tracker – Sep'26, illustrates how foreign capital is becoming increasingly selective, targeting newly issued shares and initial public offerings (IPOs) while trimming exposure to secondary market benchmarks.

September Accelerates Secondary Outflows

The split widened notably at the end of the third quarter. In September 2026 alone, foreign funds pulled a net ₹39,660 crore ($4.1 billion) from Indian equities, turning net sellers after two consecutive months of buying.

A breakdown of September's flows shows:

• Primary Market Inflows: FIIs invested ₹9,310 crore in new issuances and IPOs, following ₹12,620 crore deployed in August.
• Secondary Market Outflows: Foreign investors withdrew ₹48,970 crore from exchange-traded shares, completely reversing net secondary inflows of ₹10,230 crore seen in August.
• Benchmark Impact: The benchmark Nifty 50 declined 6.1% month-on-month in September, following a 1.2% dip in August.

Domestic institutional investors (DIIs) acted as the primary counterweight against this foreign exit, purchasing ₹76,030 crore worth of equities during September alone, supported by robust monthly systematic investment plan (SIP) contributions.

Drivers Behind the Primary vs Secondary Split

Market analysts point to multiple structural and macroeconomic factors creating this bifurcation:

Valuation Differentials and Pricing Certainty Secondary market valuations across Indian equities have traded at elevated premiums relative to historical averages and peer emerging markets. In contrast, IPOs provide predetermined pricing bands, often structured at reasonable entry valuations to ensure institutional interest.

High Primary Supply Soaking Liquidity India’s primary market has seen unprecedented activity, with hundreds of companies tapping public markets for growth capital. According to Prime Database and market trackers, September saw mainboard IPOs raise tens of thousands of crores, absorbing substantial institutional liquidity that might otherwise have circulated in secondary trades.

Macro Headwinds Hitting Exchange-Traded Equities Secondary market sentiment has been weighed down by elevated crude oil prices, persistent rupee depreciation against the U.S. dollar, and high U.S. Treasury yields. These headwinds have prompted foreign portfolio managers to book profits in liquid, large-cap listed holdings to manage global risk profiles.

Shifting Market Ownership

The multi-year acceleration of FII secondary selling has reshuffled institutional ownership on Indian bourses. While foreign investors previously held commanding ownership over Indian equities, DII holdings—driven by mutual funds, insurance houses, and pension funds—have steadily risen to match and in several segments exceed foreign holdings.

Even as broader markets face bouts of consolidation, the primary market remains a vibrant avenue for institutional capital deployment, proving that while foreign appetite for existing secondary valuations has moderated, interest in India's structural corporate expansion remains intact.

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