Foreign Portfolio Investors Shun Initial Public Offerings, Favour Block Trades Amid Valuation Concerns: Kotak Securities

Foreign Portfolio Investors Show Subdued Appetite for Indian IPO Markets

Foreign portfolio investors (FPIs) have been cautious in their approach to investing in Indian initial public offerings (IPOs) in recent months, with a significant decline in their participation in the primary market. According to Ramesh Srinivasan, managing director and chief executive of Kotak Investment Banking, FPI appetite for IPOs has been muted, but they have been more active in follow-on offerings, sell-downs, and qualified institutional placements (QIPs).

Data analyzed by Mint shows that global institutional anchoring for domestic IPOs has seen a 40% year-on-year decline in the first five months of 2026. FPIs, who commanded 42% of the qualified institutional buyer allocation in mainboard IPOs between January and May 2025, saw their share retreat to just 25% this calendar year.

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Meanwhile, secondary-market sales have been active in May, with several major deals taking place. Adani Ports and Special Economic Zone Ltd saw a ₹7,486 crore secondary sale on 4 May, while Tencent exited PB Fintech Ltd via an ₹805 crore block deal on 9 May. Billionbrains Garage Ventures Ltd's ₹5,326 crore offering followed soon after, and One97 Communications Ltd's ₹964 crore sale on 22 May.

According to Ramesh, offshore investors are facing two major headwinds to their entry into Indian equities: high relative valuations and a massive distraction fueled by the global artificial intelligence boom. Foreign investors have been cautious about investing in Indian equities, with major tech players like Taiwan Semiconductor Manufacturing Co, Samsung Electronics Co, and Nvidia Corp absorbing massive amounts of global capital.

Ramesh noted that traditional Indian IT services companies, once the darlings of foreign investors, are facing intense scrutiny as they fail to catch the AI wave. These legacy tech firms are likely to struggle to capture investor interest moving forward.

Despite the decline in foreign capital, Kotak remains optimistic about the domestic dealmaking environment. "The IPO pipeline [...] is one of the best quality that I have seen in 8-10 years," Ramesh said, highlighting notable large IPOs expected this year, including Jio Platforms Ltd, Manipal Health Enterprises Ltd, National Stock Exchange of India Ltd, Zepto Ltd, and SBI Funds Ltd.

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However, translating this pipeline into actual listings requires navigating ever-changing geopolitical waters. Ramesh cautioned that "volatility is the enemy of IPOs" and advised corporate clients to utilize the Securities and Exchange Board of India's (Sebi) confidential filing route to keep their options open until market conditions stabilize.

A new wave of IPOs, expected once the global headwinds subside, will not see overhyped premiums simply for being the new supply in a cold market, Ramesh said, crediting domestic institutions for enforcing strict pricing discipline. The growing influence of mutual funds over company promoters has led to a departure from the previous cycle of India's IPO boom, characterized by frothy valuations and post-listing crashes.