FPI Share in Indian IPO Anchor Books Drops to Five-Year Low of 36.16% as Domestic Capital Dominates

Foreign portfolio investors (FPIs) are turning increasingly selective when backing initial public offerings (IPOs) in India. Their participation in anchor allocations has slumped to 36.16% so far this year—the lowest level recorded in five years—down sharply from a peak of 62.75% in 2021, according to data compiled by PRIME Database. The previous low during this period was 37.85% in 2022.

The retreat is also visible across the broader primary market: the overall share of FPIs in total IPO fundraising has more than halved from 2021 levels to 11.61%, marking another five-year trough.

A Structural Rebalancing of Anchor Books

Of the 104 IPOs that hit the Indian primary market so far this year—raising an aggregate ₹1.55 trillion—anchor investors accounted for ₹49,771 crore. Of that anchor pool, overseas funds contributed ₹17,998 crore. By comparison, during the 2021 boom, companies raised ₹1.19 trillion, with anchors taking up ₹46,312 crore and FPIs committing ₹29,059 crore.

This declining foreign footprint comes against the backdrop of broad secondary market headwinds. The benchmark Nifty 50 has retreated roughly 12% year-to-date, hurt by persistent geopolitical friction, elevated crude oil prices, firm U.S. bond yields, and an ascendant greenback. National Securities Depository Limited (NSDL) data shows net FPI outflows from Indian equities reaching ₹2.95 trillion over the year.

Even so, foreign institutions have not fully abandoned Indian issuances. In October alone, FPIs deployed a net ₹13,239.35 crore into primary markets and other equity offerings, up 23% year-on-year, bringing total net primary investments to ₹68,763.15 crore for the year. However, their selective deployment highlights a clear preference for large-scale, fair-valued transactions over smaller, aggressively priced issues.

Drivers of Foreign Restraint

Market intermediaries attribute the pullback to valuation mismatches and competing global capital allocations.

Key Factors Dampening FPI Appetite:

• Valuation Concerns: Expensive pricing in Indian public issues relative to corporate earnings growth has prompted foreign institutions to exercise caution.
• The Global AI Trade: Global fund flows have aggressively concentrated in artificial intelligence and semiconductor infrastructure across North America and East Asia, sectors where the Indian primary pipeline offers comparatively fewer direct plays.
• Secondary Market Underperformance: Weak benchmark returns and rupee depreciation have crimped foreign dollar-denominated returns, elevating risk aversion.

“FPIs have continued to participate in larger transactions while being relatively selective about smaller deals,” said Dharmesh Anil Mehta, Managing Director and Chief Executive Officer at DAM Capital Advisors Ltd. “Also, global investors' interest is currently tilted towards AI and technology-related opportunities. India has had relatively fewer such offerings, which has also contributed to lower FPI participation.”

Domestic Institutional Dominance Reshapes Pricing Power

As overseas institutions turn cautious, domestic institutional investors (DIIs)—led by mutual funds, insurers, and pension managers—have stepped up to bridge the gap.

According to data from the Association of Mutual Funds in India (Amfi), mutual fund industry assets under management expanded 9.3% year-on-year to ₹82.64 trillion in September. Monthly systematic investment plan (SIP) inflows surged 10.7% over the same timeframe to ₹32,490 crore, ensuring an uninterrupted stream of domestic retail savings into institutional hands.

“The composition has evolved significantly, with domestic mutual funds, insurance companies and other institutional investors becoming much larger participants,” said Bhavesh A. Shah, Managing Director at Equirus. “The growth of SIPs and financial savings has created a strong pool of domestic institutional capital.”

This domestic liquidity cushion has also fundamentally shifted deal dynamics. With domestic funds providing the bedrock for issue subscriptions, issuers no longer rely exclusively on global roadshows, giving domestic buyers greater bargaining leverage.

“The dominance of domestic players in IPOs has also led to scaling back of valuations,” noted Pranav Haldea, Managing Director of PRIME Database. “Domestic institutional investors are better at driving a better price in an IPO, and with the lack of foreign players, such bargaining power has increased. The trend of domestic capital dominating anchor investment is likely to continue as mutual fund flows show no signs of abating.”

Marquee Issues Still Command Global Attention

Despite broad restraint, mega-transactions remain capable of mobilizing deep overseas books. The recent Jio Platforms IPO demonstrated that global institutional appetite remains robust when large-scale assets enter the market. Jio Platforms' anchor book attracted demand exceeding $25 billion—over 30 times the available allocation—with the company placing more than ₹8,100 crore of shares with anchors, including global giants such as the Abu Dhabi Investment Authority, BlackRock, and Fidelity, alongside domestic institutions. Domestic mutual funds secured ₹2,785 crore, or 34.34% of that anchor tranche.

For retail and high-net-worth investors, the changing composition of anchor books signals that future IPO pricing may become more rationalized, anchored primarily by local fund managers attuned to domestic cash flows rather than volatile cross-border sentiment.