FII Investment In India's IPO Market Declines In November Amid Volatility, Bids Fall; Key Triggers?

Foreign Institutional Investors (FIIs), who have been aggressive sellers in the Indian secondary markets in recent weeks, are now showing a noticeable pullback in their participation in the country's primary markets as well. According to recent data, FIIs' share in the cumulative bids for initial public offerings (IPOs) launched in November has plummeted to just 15%, a stark decline compared to over 100% and 50% in September and October, respectively.

In the first half of November alone, four major IPOs - Swiggy, Sagility India, ACME Solar Holdings, and Niva Bupa Health Insurance - collectively raised around Rs 18,534 crore. However, FIIs have contributed a mere Rs 2,900 crore to these bids, according to data from the National Securities Depository Limited (NSDL). In stark contrast, during October, FIIs invested a total of Rs 19,842 crore in six IPOs, raising a combined value of Rs 38,686 crore. September saw FIIs invest Rs 11,172 crore in 12 IPOs with a total size of Rs 11,058 crore, with the investments surpassing the IPO values in some cases due to oversubscription.

Experts attribute the declining FII interest in India's IPO market to a combination of global uncertainties and domestic economic concerns. A significant factor is the recent shift in US leadership, with the victory of Donald Trump in the US Presidential elections. Trump's rhetoric and his focus on a US-centric growth agenda have raised concerns among FIIs about potential policy changes that could negatively affect international investments. This uncertainty has resulted in a global trend of FII selling, as investors brace for the possible implications of Trump's policies on the global investment landscape.

FIIs are reportedly reducing their positions in Indian equities while they await clearer guidance on the future direction of US policies. Once there is more clarity, particularly on how Trump's administration will shape international trade and investment relations, FIIs may reconsider their stance and potentially resume investments in India.

In terms of secondary market activity, FIIs have been net sellers in India throughout November, offloading over Rs 26,800 crore worth of shares. This follows a hefty sell-off in October when FIIs sold more than Rs 1.1 lakh crore in Indian equities. The significant selling reflects growing concerns about India's economic outlook.

China's recent $4 trillion stimulus package has played a pivotal role in improving its economic outlook by addressing bad debt issues, which has positioned the country as a more attractive investment option. The combination of lower valuations and higher growth prospects in China is drawing attention away from India. Experts believe that this shift in global investment sentiment, along with domestic challenges, is contributing to the reduced FII participation in India's markets.

As global and domestic factors continue to weigh on investor sentiment, it remains to be seen how FIIs will approach the Indian market in the coming months. For now, they seem to be exercising caution, keeping a close watch on both local economic data and international developments, particularly in the US and China.

*Inputs from Moneycontrol*