Foreign funds get picky, IPO anchor share hits five-year low

Foreign portfolio investors' (FPI) investments as part of the total anchor book for initial public offerings (IPOs) slumped to its lowest in five years to 36.16% so far this year from its peak of 62.75% in 2021, according to data from PRIME Database. The previous low, as per the data, was 37.85 % in 2022. FPIs’ share of the total IPO fundraising so far this year has also more than halved from its 2021 level to 11.61%, another five-year low.

The development has led to domestic institutional investors (DIIs) increasingly taking the place of foreign funds in anchor books. Mutual funds, insurance companies and other domestic institutions are emerging as important sources of capital, reducing companies' dependence on overseas investors to raise money. However, not all issues have been deprived of foreign capital. “FPIs have continued to participate in larger transactions while being relatively selective about smaller deals," said Dharmesh Anil Mehta, managing director and chief executive officer at DAM Capital Advisors Ltd.

"Also, global investors' interest is currently tilted towards AI and technology-related opportunities. India has had relatively fewer such offerings which has also contributed to lower FPI participation.” Mehta said DIIs now play a much larger role in anchor books, reducing the traditional dependence on foreign institutional capital. In the anchor book, institutional investors commit funds a day before an IPO opens for subscription.

Their participation is closely tracked as it provides an indication of institutional demand and can help build confidence among other investors. Of the 104 issues that entered the primary market so far in 2026, raising a combined ₹1.55 trillion, anchor investors contributed ₹49,771 crore. FPIs accounted for just ₹17,998 crore of the anchor book, according to PRIME Database. In 2021, companies had raised a total of ₹1.19 trillion.

The total anchor book was ₹46,312 crore while FPIs contributed ₹29,059 crore. Foreign investors are also pulling back from the secondary market. The Nifty 50 has declined around 12% so far this year, weighed down by geopolitical tensions, elevated crude oil prices, rising global bond yields and a stronger US dollar. A weaker rupee, concerns over corporate earnings and relatively expensive valuations have added to the pressure.

FPIs have remained net sellers in Indian equities, with outflows from the equity market amounting to ₹2.95 trillion so far in 2026, according to the data provided by the National Securities Depository Limited (NSDL). However, their participation in primary markets tells a different story. FPIs recorded net investments of ₹13,239.35 crore in the equity category of 'primary markets and others' in October, a 23% increase from the corresponding period last year.

Their cumulative net investments under this category were at ₹68,763.15 crore in 2026 so far, NSDL data showed. This suggests that foreign investors have not completely turned away from Indian issuances but are being more selective about the companies and valuations they back. “The composition has evolved significantly, with domestic mutual funds, insurance companies and other institutional investors becoming much larger participants," said Bhavesh A.

Shah, managing director at Equirus. "The growth of SIPs (systematic investment plans) and financial savings has created a strong pool of domestic institutional capital.” Assets managed by mutual funds grew 9.3% to ₹82.64 trillion in September as compared to the same period a year ago. Monthly SIP contributions surged 10.7% to ₹32,490 crore in the same period, according to Association of Mutual Funds in India (Amfi) data.

The growing clout of domestic institutions is also changing how IPOs are prices, giving them a greater say in valuations. “The dominance of domestic players in IPOs has also led to scaling back of valuations. Domestic institutional investors are better at driving a better price in an IPO, and with the lack of foreign players, such bargaining power has increased,” said Pranav Haldea, managing director of PRIME Database.

“The trend of domestic capital dominating anchor investment is likely to continue as mutual fund flows show no signs of abating,” he added. Large offerings, however, continue to draw foreign investors' interest. The recent Jio Platforms IPO is expected to turn back their attention to India as the country's largest offering so far. Its anchor book attracted total bids of over $25 billion, or over 30 times the shares available for allocation.

Jio Platforms allotted shares worth more than ₹8,100 crore to anchor investors. Domestic mutual funds got shares worth ₹2,785 crore, accounting for 34.34% of the anchor book, while life insurers and pension funds received ₹1,090 crore, or 13.44%. Overseas investors included BlackRock, Fidelity, Capital Group, JPMorgan Asset Management and Franklin Templeton, along with sovereign investors such as the Abu Dhabi Investment Authority and the Monetary Authority of Singapore.

“The Jio Platforms IPO, given its scale and the strength of its underlying business, could be an important catalyst in bringing global investor attention back to the Indian primary market," said Shah. "Ultimately, quality businesses, credible growth prospects and appropriate valuations will attract capital.” Mehta said the sustained recovery in FPI participation will depend on relative valuations, global liquidity, currency stability and India's attractiveness compared with other emerging markets.