Indian stocks are said to be at terrible prices. Too expensive to buy, too stretched to justify. This has been the familiar assessment in market circles—even when the indices dropped 10% from their September peak last year.
The criticism is harsher when it comes to IT companies. Analysts argue they are “above the earth’s attraction limit.” In other words, their valuations are so elevated that expecting profit growth strong enough to justify their price-to-earnings ratio is unrealistic. Banks, too, are not spared. Their profit growth is slowing as lending remains weak, while interest margins are shrinking because of higher deposit costs.
In short, the story keeps repeating itself: Indian stocks are too expensive to buy.
So, does this mean everyone is dumping Indian equities and walking away? Not exactly. Yes, there has been selling, especially by foreign portfolio investors (FPIs). They have exited stocks—but crucially, they did not take their money out of India.
Instead, they redirected it. The money pulled from the secondary market has found its way into the primary market—specifically, initial public offerings (IPOs). Foreign funds are turning up as anchor investors in companies going public. Once the IPO is completed and the stock lists, they book profits and exit within a defined timeframe.
It has turned IPOs into a profitable sector in their own right.
It is not just foreign investors. Domestic funds are also active in IPOs, spotting the same opportunities to profit in advance of listings. Consider the figures for 2024:
Foreign investors put $14.5 billion into Indian IPOs and follow-on public offerings (FPOs).
In the same year, they sold $14.4 billion worth of shares in the secondary market.
The return on Indian IPO–FPO investments in 2024 was 37.1%.
By contrast, the overall Indian stock market delivered just 7%, according to the Ernst & Young Global IPO Trends report.
For foreign investors, the calculation is simple. It is more profitable to play in the primary market than in the secondary one.
Their concern is not unfounded. The MSCI India index is trading at a PE ratio of 25.4, compared with 15.41 for the MSCI Emerging Markets index. MSCI China is at 14.6 and MSCI Korea at 12.4. It is not difficult to see why foreigners have been drawn more towards China and Korea than India in recent months.
Foreign investors also point out that Indian valuations remain high despite the US imposing a 50% tariff on Indian exports. Instead of investing directly in the Indian market, they have chosen to enter via IPOs and FPOs. For funds that are judged by performance, the goal is profit—and experience has taught them that the primary market is the best place to get alpha.
The main attraction is price. IPOs are priced by companies and merchant banks to draw investors in. Once the stock hits the exchanges, other forces come into play, often pushing valuations beyond reason. For those looking for returns, the IPO price is the entry point worth chasing.
Macroeconomic factors, including GDP growth, continue to draw capital into India. For foreign investors, the way to capture that growth has been to enter through IPOs.
In 2024, India topped the global IPO charts in terms of numbers. The country saw twice as many IPOs as the US and two-and-a-half times that of Europe. In value terms too, India performed strongly. American IPOs raised $32.8 billion, while Indian IPOs raised $19.9 billion.
Notably, the world’s second-largest IPO of 2024 was Hyundai Motor India, which raised $3.3 billion. The size of offerings has not spooked the market. Unlike a decade ago—when Coal India’s $3 billion IPO triggered liquidity withdrawals from mutual funds and left banks strapped—today’s Indian market absorbs such large issues with ease.
A key reason is liquidity. Mutual fund inflows have been uninterrupted for 54 months. Assets under management rose from $696 billion in June 2024 to $85,000 billion in June 2025—an increase of 23%.
This reflects a deeper shift. Alongside India’s economic growth, more people are entering the capital market and investing larger sums. Demat accounts have now crossed 20 crore, with 4.11 crore of them created in 2024–25 alone.
The rising number of retail investors points to growing confidence that India will deliver steady long-term progress. That confidence has made the market more resilient meaning the buying and selling of foreign investors no longer shake the market the way they once did.
{The article is published in Dhanam Magazine, October 15,2025 edition}
