What’s going on here?
Foreign investors are shifting their focus from expensive Indian stocks to new listings in primary markets, seeking cheaper exposure and better returns.
What does this mean?
With India’s stock valuations peaking higher than those in major global markets, foreign investors are booking profits and exploring less pricey opportunities. So far this month, they’ve sold a net $3.42 billion worth of equities in the secondary market while snapping up $1.47 billion through primary market issuances, according to India’s Central Depository Services Ltd. This pivot has driven foreign purchases in the primary market to over $6 billion this year, their highest tally since 2021, as shown in a Societe Generale report. The 12-month price-to-earnings ratio for large-and-mid cap Indian stocks stands at 24 times, making them the costliest among key global markets, as per LSEG data.
Why should I care?
For markets: The draw of new opportunities.
The Indian primary market has seen $7.3 billion in IPO listings this year, outpacing China’s $5.1 billion. These lower valuations and reduced competition from retail and institutional investors are making the Indian primary market a magnet for foreign investors. Primary market valuations are generally lower due to the lack of competition, says Jon Withaar, head of Asia Special Situations at Pictet Asset Management. Michael Collins, CEO of WinCap Financial, adds that companies strategically price IPOs and rights issues conservatively, presenting lucrative growth prospects to investors.
The bigger picture: A shift in strategy as the Fed changes course.
With the Federal Reserve expected to lower interest rates, analysts predict foreign investors will continue looking to India’s primary market for higher returns. This move reflects a broader trend of seeking better and faster return prospects in riskier markets, stepping away from moderated earnings growth in the secondary market. The changing economic landscape is poised to keep the primary market vibrant with international interest, providing a fresh channel for foreign capital inflow.
