Foreign investors return to India but primary supply caps equity gains
Foreign portfolio investors have reversed their selling streak in India, but massive primary market issuance and expiring lock-ins are absorbing the fresh capital, leaving benchmark indices range-bound.
Foreign portfolio investors have injected ₹50,000 crore into Indian equities over the past two months, ending a prolonged selling streak that began in September 2024. However, this renewed foreign interest has failed to trigger a broad market rally, with the Sensex and Nifty gaining just 0.6% and 0.9% respectively over the period.
The muted index performance reveals that foreign capital is being entirely absorbed by primary market supply rather than bidding up existing secondary market stocks. In August alone, initial public offerings, qualified institutional placements, and block trades reached a combined ₹1.07 trillion, marking the highest monthly level this year.
Foreign investors are heavily favoring these fresh issuances over open market purchases. Primary market allocations consumed nearly 40% of the ₹29,361 crore that foreign funds net invested in Indian equities in August. Year-to-date figures show an even starker divergence, with foreign buyers putting ₹45,711 crore into primary markets while withdrawing nearly ₹2.7 trillion from secondary trading.
Block deals are driving much of this volume, jumping 63% in August to nearly ₹80,000 crore. This surge is largely fueled by private equity and venture capital investors exiting positions after six-month lock-in periods expired for new-age companies that listed between November 2025 and February 2026.
On August 26 alone, block deals exceeding ₹10,300 crore were executed across firms including Lenskart, Groww, and PhysicsWallah. Domestic mutual funds, pension trusts, and select foreign investors like Goldman Sachs participated in these transactions.
Rohit Bhayana, chief executive of Oister Global, noted that a global realization regarding over-investment in artificial intelligence and data centres prompted a search for alternative markets. He added that investment banks deliberately offered meaningful primary allocations to foreign funds at favorable valuations to bring them back to India.
Despite the return of foreign capital, the sheer volume of new shares is keeping a lid on broader valuations. Tanvi Kanchan of Anand Rathi noted that upcoming mega-issuances from the National Stock Exchange and Jio Platforms will keep equity supply elevated.
Consequently, the secondary market is expected to remain range-bound through September. As Kanchan summarized, a genuine market breakout will only occur when foreign inflows far exceed the massive primary supply currently hitting the market.
