FIIs Dump Secondary Stocks, But Pour $71 Billion Into IPOs: What Global Money Is Really Buying In India

Foreign Institutional Investor (FII) flows have been viewed as the bellwether for global sentiment toward Indian equities. Over the past couple of years, the sentiment around domestic equities has appeared negative amid sustained selling by foreign investors. In the first 10 months of 2026 alone, foreign investors have net sold Indian equities worth Rs 2,32,166.97 crore.

Often this sustained selling is perceived by retail and domestic investors as a lack of confidence in the domestic market. However, a research note by Motilal Oswal Financial Services reveals that this interpretation may not be completely true. Instead of abandoning Indian equities entirely, global investors are executing a structural shift in how they deploy their capital.

FIIs Sell Equities But Bet On Indian IPOs

According to the research note, there’s a divergence in how FIIs have deployed money in India over the past decade. Over the past decade, FIIs have cumulatively withdrawn $3 billion from India’s secondary equity market. Yet, while the secondary market has seen net outflows, the primary market tells a different story, as FIIs have invested $71 billion in the primary market in the same period. The numbers show that foreign capital is seeking out newly listed companies rather than investing in existing stocks.

“While FIIs have remained bearish on the secondary market, their capital allocation has increasingly shifted toward the primary market, reflecting a growing preference for emerging themes,” the financial services firm said.

Why Are FIIs Bullish On The IPO Market

FIIs have shown strong positive sentiment around the primary market, as stocks in the secondary market are currently facing distinct challenges. The shift appears to be led by the relative attractiveness of newer growth opportunities in the form of initial public offerings (IPOs), according to the note. On the other hand, conventional themes within the secondary market have faced challenges from relatively moderate growth and elevated valuations.

Additionally, adverse global events, rising interest rates, and a concentration of global capital into artificial intelligence (AI)-related trades have forced foreign funds to be selective with their Indian secondary market holdings even as primary market holdings were increased.

“This shift appears to be driven by the relative attractiveness of newer growth opportunities, as conventional themes have faced challenges from relatively moderate growth and elevated valuations,” Motilal Oswal Financial Services said.

 IPOs provide global funds with access to emerging themes and modern business models that are often underrepresented in the legacy indices. These listings allow FIIs to capture early stage growth. The report also said that FIIs have shown interest in sectors, such as manufacturing, capital goods, defence, electronics manufacturing services (EMS), data centres, and new-age internet businesses.

What This Means For The Indian Market

For the Indian market, the fundamental shift in foreign capital allocation shows that the market is not simply suffering from a broad-based capital flight, but rather a long-term reallocation of resources. Foreign money remains committed to the Indian economic narrative, but is selective in deployment.

For domestic investors, the trend shows where the institutional focus is heading. Foreign appetite for primary issuances suggests that the real alpha generation in the coming years may not come from traditional heavyweights that dominate major stock indices. Instead, investors may need to look toward the primary market and newly-listed entities to find the emerging themes that are currently captivating global capital.