In recent years, India has emerged as one of the most dynamic financial markets in the world. Despite a global slowdown and uncertainties in emerging economies, the Indian equity market continues to draw the attention of both domestic and international investors. Yet, an intriguing paradox has unfolded: while foreign institutional investors (FIIs) have been consistently selling off Indian stocks in the secondary market, they are simultaneously pouring billions of dollars into India’s primary market through initial public offerings (IPOs) and follow-on offerings.

This contradiction is not simply a market anomaly it reveals deeper strategic considerations, valuation dynamics, and long-term confidence in India’s growth story.

Urban Company: A Symbol of Investor Enthusiasm

The most recent example of this phenomenon is Urban Company, India’s consumer-tech focused urban services platform, which went public in September 2025. On its listing day, the company’s shares skyrocketed nearly 60%, instantly turning heads across global markets.

Founders, clad in their signature blue jackets and khaki pants, rang the bell at the National Stock Exchange (NSE) to mark the debut. Global investors from San Francisco, New York, London, and Singapore had already secured allocations during the IPO, priced at ₹103 per share with an overall valuation of ₹147.9 billion (≈$1.7 billion). Within ten days, the company’s valuation surged to $2.8 billion, as the stock climbed to ₹169 an impressive 64% jump.

The resounding success of Urban Company’s IPO is more than just a win for one startup; it represents a broader trend in India’s capital markets—global investors increasingly prefer to participate in IPOs rather than secondary market trades.

The Numbers Behind the Paradox

Data from the National Securities Depository Limited (NSDL) highlights this divergence.

• In 2024, FIIs invested $14.5 billion in the primary market but simultaneously withdrew $14.4 billion from the secondary market.

• In 2025 (year-to-date), they have sold $20.7 billion worth of stocks in the secondary market, while committing $4.8 billion to IPOs and fresh issuances.

This is not a coincidence. Rather, it reflects a deliberate reallocation of capital towards opportunities where valuations are perceived as more favorable.

Why IPOs, Not Secondary Market Stocks?

The key lies in valuation metrics. The MSCI India Index is trading at a price-to-earnings (P/E) ratio of 25.4x, significantly higher than other emerging markets. By contrast:

• MSCI Emerging Markets Index (including India): 15.4x

• MSCI China: 14.6x

• MSCI South Korea: 12.4x

Clearly, India’s secondary market is expensive relative to its peers. For global fund managers seeking alpha, IPOs offer a more attractive entry point.

As Hiren Dasani, Head of Emerging Markets at Singapore-based White Oak Capital, explained: “We see alpha potential by participating in IPOs. Management teams and banks typically price new issues attractively to ensure demand, making them more compelling than buying into an already overheated secondary market.”

Moreover, IPOs allow investors to build new positions transparently, without the hidden costs of liquidity impact. Unlike large secondary trades, IPO allocations do not disrupt market prices.

India’s IPO Boom: A Global Standout

The trend is reinforced by India’s remarkable IPO performance. According to EY’s Global IPO Trends Report:

• In 2024, IPO returns in India averaged 37.1%, far outpacing the broader stock market return of just 7%.

• India ranked first globally in IPO volume, listing nearly twice as many companies as the U.S. and more than two and a half times Europe.

• In terms of total value, India was second only to the U.S., raising $19.9 billion, including the massive $3.3 billion IPO of Hyundai Motor India (the largest in India’s history and the second-largest globally that year).

This scale and momentum showcase why global investors are keen on India’s primary market. IPOs not only deliver higher short-term returns but also provide exposure to India’s long-term growth trajectory.

Macro Strengths and Domestic Capital as a Backstop

India’s macroeconomic fundamentals further underpin investor confidence. With GDP growth among the highest in major economies and favorable demographics (a young, tech-savvy population), the structural story remains intact.

Additionally, strong domestic capital inflows have stabilized the market. In the past 54 months, Indian equity mutual funds have seen uninterrupted net inflows. Assets under management (AUM) of Indian mutual funds surged from $696 billion in June 2024 to $850 billion in June 2025, according to the Association of Mutual Funds in India (AMFI).

This depth of domestic liquidity provides a cushion against foreign outflows, ensuring that the market can absorb large issuances. Consequently, FIIs feel confident investing in IPOs, knowing they won’t get “stuck” in illiquid positions.

Upcoming IPO Pipeline: Bigger and Bolder

The story doesn’t end with Urban Company or Hyundai Motor India. A robust pipeline of mega-IPOs is set to further fuel foreign participation.

• Tata Capital is preparing for a $2 billion IPO in October.

• LG Electronics India is planning a similarly sized listing.

• Reliance’s Jio Platforms, one of India’s largest telecom and tech giants, is expected to go public in the first half of 2026, in what could become one of the world’s most-watched IPOs.

As Shouvik Purkayastha, Head of Investment Banking at Nuvama, observed: “FY2026 will likely match FY2025, which was already a record-breaking year for IPOs, with a slight increase in value as more conglomerates line up for listings.”

Strategy or Contradiction?

At first glance, the dual behavior of selling secondary shares while buying IPO allocations might appear contradictory. But in reality, it is a highly rational strategy.

• The secondary market is viewed as expensive and saturated.

• IPOs, by contrast, provide fresh, attractively priced opportunities with strong growth potential.

• Robust domestic participation ensures liquidity, reducing risks for global funds.

• Historical performance data validates this approach IPOs in India have consistently outperformed.

As Alexander Treves of JP Morgan Asset Management summed it up: “India offers a compelling opportunity for investors thanks to its macro backdrop, innovative business models, and high-quality management teams. IPOs give us transparent entry points into this growth story.”

A Calculated Bet on India’s Growth Story

The so-called “strange case” of foreign investors selling Indian stocks while aggressively chasing IPOs is less about contradiction and more about strategy. Global investors are carefully navigating India’s premium valuations by leveraging the IPO boom as a gateway into the market.

With domestic liquidity rising, corporate India delivering exciting business models, and a strong IPO pipeline ahead, this dual-track approach may well continue for years to come.

In essence, FIIs are not abandoning India they are simply choosing their battles wisely.

(Source: CNBC)