Foreign investors ditch expensive Indian stocks, opt for new issues By Reuters

By Patturaja Murugaboopathy and Gaurav Dogra

(Reuters) – Foreign investors are offloading their holdings of expensive Indian stocks and are instead turning to new primary market listings in search of cheaper market exposure and better returns.

Their sell-off was driven by profit booking as Indian stocks trade at record highs and at valuations that outperform most major stock markets.

Investors instead pump money into initial public offerings (IPOs), which have lower valuations and where there is less competition for shares.

Foreigners have so far sold a net worth of $3.42 billion in secondary market shares. They have purchased a net $1.47 billion through primary market issues so far this month, according to India’s Central Depository Services Ltd.

A Societe Generale (OTC:) (SG) report showed foreigners bought more than $6 billion of primary market shares this year, the most since 2021.

“Foreign investors are wary of allocating funds in the secondary market for the long term and seeing better and faster return prospects in the primary market,” said Rajat Agarwal, Asia equity strategist at SG.

They are sellers in the secondary market this year, in part because the outlook for earnings growth has moderated, he said.

India’s NSE Nifty 50 is up 14 percent this year, and its 12-month price-to-earnings ratio for its large- and mid-cap stocks is 24 times, the highest among major global markets, according to LSEG data.

Meanwhile, the Indian primary market has been busy, with $7.3 billion in IPO listings so far this year — the largest in Asia, followed by China’s $5.1 billion, according to Dealogic data.

Foreigners are attracted by the cheapness of shares on the primary markets.

Jon Withaar, head of Asia Special Situations, Pictet Asset Management, said valuations tend to be lower in primary markets due to a lack of competition from retail, indices, ETFs and most types of institutional investors.

“Companies offering IPOs or rights issues tend to price their shares conservatively to ensure a successful launch and attract more investor interest,” said Michael Collins, chief executive of WinCap Financial.

“This lower valuation can also be seen as an opportunity for foreign investors who believe these companies have significant long-term growth potential.”

With the Fed poised to cut interest rates and investors looking to tap into riskier markets for higher returns, analysts expect foreigners to continue to use this route to own Indian stocks.