Mumbai: A Hub of Foreign Portfolio Investment in IPOs
Mumbai, often referred to as the financial capital of India, is witnessing a remarkable trend in foreign portfolio investment (FPI) that underscores the city’s pivotal role in the global financial landscape. Despite recent challenges in the secondary market, FPIs are increasingly betting on India’s robust growth story, particularly as anchor investors in initial public offerings (IPOs) of local companies.
Surge in Anchor Investments
In the fiscal year 2025, collective investments from overseas funds in the anchor books of Indian IPOs surged threefold, reaching an impressive ₹26,508 crore compared to the previous year. This significant increase highlights the growing confidence of foreign investors in the Indian market. Notably, the share of FPIs in total anchor investment improved to 46% in the year ending March 2025, up from 35% in FY23. This trend indicates a strong commitment from foreign investors, even amidst the noise surrounding potential changes in global trade tariffs.
Continued Commitment Amidst Market Volatility
Despite the challenges posed by stretched valuations and geopolitical tensions, FPIs remain undeterred. In the current financial year alone, foreign funds have already invested ₹7,142 crore in anchor books until August. Bhavesh Shah, managing director and investment banking head at Equirus Capital, emphasizes the strategic advantage of investing in IPOs: “You are backing a company before the market fully prices its future prospects.” This foresight is a key reason why overseas funds are flocking to IPOs, as they seek to capitalize on early-stage growth potential.
The Role of Anchor Investors
Anchor investors play a crucial role in the IPO ecosystem. They are required to hold the stock allocated to them for a specified period before selling in the secondary market. This mechanism not only stabilizes the stock price post-listing but also instills confidence among retail investors. Local funds also maintain a robust presence in the IPO anchor market. Domestic institutional investors (DIIs), which include mutual funds and insurance companies, saw their anchor participation climb two-and-a-half times to ₹30,709 crore in FY25 compared to the previous year.
Higher Returns for Early Investors
Investing in IPOs offers unique advantages, particularly for early investors. When a company lists, it is often at the beginning of its growth cycle, presenting opportunities for significantly higher returns compared to established companies. Shah notes that the minimal impact of bulk purchases on stock prices and access to differentiated business models at attractive valuations are additional incentives for investors.
Challenges in the Secondary Market
While the IPO market is thriving, FPIs have been more cautious in the secondary markets due to various factors, including geopolitical tensions and uncertainties related to tariffs that could affect India’s merchandise exports to the US. In FY25, foreign funds sold approximately ₹1.3 lakh crore worth of Indian equities, with an additional ₹2,322 crore sold in the current financial year until mid-August. This trend indicates a cautious approach among foreign investors, who are navigating a complex global economic landscape.
The Shift in Market Dynamics
Interestingly, while local institutional funds continue to dominate the total anchor book, their share has decreased in recent years. In FY25, the share of domestic institutions fell to 53% from 65% in FY23. Pranav Haldea, managing director of Prime Database Group, views this shift positively, particularly for smaller IPOs. He notes that it has significantly reduced their dependence on foreign investors, fostering a more self-reliant market.
Among domestic institutional backers, mutual funds contributed ₹21,740 crore, while insurance companies added ₹5,098 crore as anchor investors in FY25. This robust participation from local institutions not only enhances market stability but also reflects growing confidence in the Indian economy.
Conclusion
Mumbai stands as a beacon of opportunity in the global financial landscape, particularly in the realm of IPOs. The surge in foreign portfolio investments, coupled with strong participation from domestic institutions, paints a promising picture for the future of the Indian market. As the city continues to attract both local and foreign investors, it reinforces its status as a vital hub for financial growth and innovation. The ongoing developments in the IPO space will undoubtedly shape the trajectory of investments in India, making it a focal point for those looking to capitalize on the country’s world-beating growth story.