Why Foreign Investors Are Selling Listed Shares But Buying Into IPOs

Foreign institutional investors (FIIs) have been selling Indian shares in the secondary market this year, but that does not mean they are walking away from India altogether.

FIIs have pulled nearly ₹2.8 lakh crore out of listed stocks so far in 2026. At the same time, they have put more than ₹47,000 crore into initial public offerings (IPOs). The contrast shows that foreign investors are becoming more selective about where and how they enter the Indian market.

Rather than buying large quantities of shares directly from the stock market, many global investors are finding IPOs a more convenient way to take exposure to Indian companies.

FIIs Are Changing Their Route Into India

“FIIs are not completely exiting India; rather, they are changing how they invest in it,” Raj Gaikar, Equity Research Analyst at SAMCO Securities, told ET Markets.

Numbers from the past few years show this approach has been building for some time. FIIs invested nearly ₹74,000 crore in the primary market in 2025 and around ₹1.21 lakh crore in 2024.

During those same years, they were net sellers in the secondary market, pulling out ₹2.39 lakh crore in 2025 and ₹1.28 lakh crore in 2024.

So, the selling seen in listed shares tells only one part of the story. Foreign investors are reducing exposure to some existing stocks while continuing to put money into selected new opportunities.

Why Are FIIs Selling Listed Stocks?

Valuations are one reason.

Several large Indian stocks have become expensive after strong rallies, while earnings growth in some sectors has slowed. For a global fund comparing investment opportunities across emerging markets, other countries may offer cheaper valuations.

According to Gaikar, this has encouraged foreign investors to reduce holdings in some listed companies and look elsewhere for better opportunities.

The composition of India's stock market also matters. Banks, IT services and consumer companies account for a large share of major indices. These are well-established sectors, but growth expectations have moderated in some of them.

As a result, FIIs have been trimming positions in areas where they see limited room for further expansion.

Why IPOs Are Attracting Foreign Money

Buying through an IPO gives a large institutional investor something the secondary market often cannot: the ability to purchase a sizeable stake at one go.

If a foreign fund tries to buy a large quantity of shares from the open market, its own buying can push up the stock price. That makes the transaction more expensive.

An IPO works differently. Anchor investors and qualified institutional buyers can receive large allocations within a fixed price band.

Tanvi Kanchan, Associate Director at Anand Rathi Shares & Stock Brokers, described this as “price certainty without market impact.”

For a large global investor, that can make a considerable difference.

IPO pricing may also offer a better entry point compared with some already-listed peers. And in many cases, a new listing gives investors access to a business or sector that is not widely available in the existing market.

New Listings Are Opening Up Different Sectors

India's listed market has traditionally been dominated by familiar sectors such as financial services, IT and consumer businesses.

The IPO market, however, is bringing a different set of companies to investors.

New offerings are giving FIIs exposure to electronics manufacturing, consumer technology, renewable energy and capital-market businesses. Some of these segments have very few comparable listed companies in India.

In such cases, an IPO may be the easiest way for an overseas fund to gain exposure to a particular theme.

Gaikar said the shift is gradually changing the kind of Indian businesses foreign investors own. Portfolios are moving more towards domestic consumption and manufacturing opportunities, while exposure to some rate-sensitive sectors is being reduced.

A Large IPO Pipeline Is Keeping FIIs Interested

The steady flow of upcoming IPOs is another reason foreign investors continue to watch India closely.

The pipeline of companies that have either filed papers with the Securities and Exchange Board of India (SEBI) or received approval for their IPOs is estimated at more than ₹4.7 lakh crore. Several large names, including Jio Platforms, the National Stock Exchange and PhonePe, are expected to attract significant investor attention if they come to the market.

IPO activity has already picked up in recent months. July and August together accounted for around ₹49,600 crore of the nearly ₹72,000 crore raised through IPOs between January and August.

For FIIs, then, the current strategy appears less like an exit from India and more like a change in approach. They may be selling selected listed stocks, but they are still willing to commit money where they see a better price, a new business opportunity or a sector they want exposure to.

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