Global Money Flows: The Divergence Between Indian IPOs and Secondary Markets
In recent months, a fascinating trend has emerged in the Indian financial landscape: while global investors are pulling back from the Indian secondary market, they are simultaneously pouring capital into the country’s primary market, particularly through Initial Public Offerings (IPOs). This paradox raises questions about the underlying dynamics of investment strategies and market valuations in India.
The IPO Boom
India’s IPO market has been on fire, with the country ranking first globally in terms of IPO volumes in 2024. The nation listed nearly twice as many companies as the U.S. and more than two-and-a-half times as many as Europe, according to the EY Global IPO Trends report. Notably, Indian companies raised a staggering $19.9 billion through IPOs last year, making India the second-largest market in terms of IPO value, just behind the U.S.
One standout example is Urban Company, a consumer tech-focused firm that recently made headlines with its IPO. The company’s shares surged nearly 60% on debut, reflecting strong investor enthusiasm. This excitement is not limited to local investors; it has attracted global players from San Francisco to Singapore, who see potential in India’s burgeoning market.
The Secondary Market Retreat
Contrastingly, foreign investors have been net sellers in the Indian secondary market since 2024. Data from the National Securities Depository reveals that overseas investors redeemed approximately $14.4 billion from secondary markets while investing $14.5 billion in the primary market last year. Year-to-date figures indicate a continued trend, with foreign investors selling stocks worth $20.7 billion while investing $4.8 billion in IPOs.
This divergence can be attributed to perceptions of overvaluation in the secondary market. The MSCI India index currently trades at a price-to-earnings (P/E) ratio of 25.4x, significantly higher than the MSCI Emerging Market Index’s P/E ratio of 15.41x. In comparison, the MSCI China index trades at 14.6x, and the MSCI Korea index at 12.4x. Such disparities lead investors to seek better opportunities in IPOs, where valuations are often more attractive.
The Appeal of IPOs
For global investors, the math is straightforward. IPOs present an opportunity to enter the market at a more favorable price point, often set by management and bankers to attract significant interest. Returns from Indian IPOs have been impressive, with a reported average return of 37.1% in 2024, compared to just over 7% from the broader stock market.
Alexander Treves from J.P. Morgan Asset Management highlights that India’s macroeconomic backdrop—characterized by robust GDP growth and favorable demographics—combined with high-quality management teams, makes IPOs an attractive investment avenue. They offer a transparent price point for investors looking to build positions in new equities.
The Role of Domestic Investors
The dynamics of the Indian market have shifted significantly, with domestic investors playing a crucial role in absorbing large IPO issuances. The steady inflow of capital into equity mutual funds has bolstered market liquidity, allowing foreign institutional investors (FIIs) to participate in IPOs without the fear of being trapped in illiquid stocks.
For instance, Indian mutual funds have seen net inflows for the past 54 months, with assets managed by these funds rising to approximately $850 billion in June 2025. This growing domestic participation has instilled confidence in both issuers and foreign investors, creating a virtuous cycle that benefits all parties involved.
Future Outlook
Looking ahead, the IPO landscape in India is poised for further growth. Major corporates are lining up for listings, with expectations of an uptick in value terms. Notable upcoming IPOs include Tata Capital’s anticipated $2 billion offering and plans from Mukesh Ambani’s Jio Platforms to list in the first half of 2026.
The interplay between domestic and foreign capital is reshaping the investment landscape in India. While foreign investors may be retreating from the secondary market, their enthusiasm for IPOs signals a strategic shift that could redefine investment patterns in the country.
Conclusion
The current scenario in India’s financial markets illustrates a complex but intriguing relationship between foreign and domestic investors. As global capital flows into IPOs while retreating from secondary markets, it highlights the evolving nature of investment strategies and market perceptions. This trend not only underscores the potential of India’s primary market but also reflects the broader dynamics of global finance in an increasingly interconnected world.