FPI Activity in December: Shifting Focus from Secondary to Primary Markets

Foreign portfolio investors (FPIs) have significantly altered their investment strategy in secondary markets. In early December, FPIs invested approximately $1.7 billion in these markets but shifted gears in the latter half, selling around $1.77 billion.

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Despite this heavy selling, FPIs displayed robust buying activity in the primary market, investing $984 million in the first half of December and $1.06 billion in the second half. Overall, December saw net FPI sales of $70.17 million in secondary markets, contrasted by $2.04 billion in primary market purchases.

Analysts attribute the early secondary market interest to favorable global conditions and stable domestic factors. However, profit-taking and year-end portfolio adjustments triggered sell-offs later in the month. In contrast, primary market investments remained strong, driven by promising IPOs, growth potential, and valuations that aligned with India's economic trajectory.

Apurva Sheth from SAMCO Securities noted that expectations for rate cuts in 2025 have diminished following the Federal Reserve's latest meeting, where anticipated cuts were capped at 50 basis points. This scenario is likely to keep bond yields high, potentially reducing FPI interest in Indian investments unless valuations become considerably more attractive.

Looking ahead, experts predict a possible resurgence of FPI interest in India during the second half of 2025, bolstered by strong GDP growth, controlled inflation, and anticipated rate cuts. Improved clarity on corporate earnings may further enhance India’s appeal among emerging markets.

Prashanth Tapse of Mehta Equities highlighted several factors shaping India’s market outlook, including developments in U.S. trade policies, FPI allocation strategies, pre-budget expectations, the Reserve Bank of India's rate stance, and crucial Q3FY25 earnings results. These variables are expected to define market movements in early 2025. Tapse expressed optimism that FPIs would return as buyers when confidence in growth prospects and earnings recovery solidifies.

In December, India’s benchmark indices, Sensex and Nifty, declined by 2% each. Broader market performance was mixed, with the BSE MidCap rising 0.7% and the BSE SmallCap falling by 0.7%. The IPO market, however, remained vibrant, with 17 IPOs raising ₹25,700 crore, while 15 SME IPOs collected ₹580 crore.

Jathin Kaithavalappil of Choice Broking emphasized that FPIs are likely to continue favoring IPOs, provided they offer strong growth prospects and attractive valuations. He noted that India’s status as a resilient emerging market with robust economic fundamentals aligns well with FPI growth strategies, ensuring sustained participation in the primary market.