IPO Flows make FPI Flows Look Rosy

You could call it the tale of 2 FPI flows. On the one hand, FPIs have been selling heavily in the secondary markets. This selling is on fears that inflation could go up further, Fed and RBI could hike rates sooner and valuation concerns could get elevated and highlighted.

The other is the consistent inflows into IPOs, especially the big digital IPOs like Nykaa, Policybazaar and Paytm. The anchor placements in these IPOs did see a robust response from these foreign portfolio investors.

If you look at the overall numbers for FPIs for the month of November, it looks quite impressive. FPIs infused a sum of Rs.19,712 crore into Indian markets in the month of November so far, which included Rs.14,051 crore by way of equity inflows and Rs.5,661 crore by way of debt flows.

The debt flows are normally indicative of reducing risk of interest divergence and also parking of funds on the lookout for opportunities.

The equity flows is a lot more interesting. Inflows of Rs.14,051 crore is nearly $2 billion in the first 2 weeks, which is quite impressive. However, there is a clear dichotomy here. FPIs actually pulled out Rs.9,128 crore from the equity secondary markets but infused Rs.23,179 crore into IPOs during this same period.

This is across some major big ticket IPOs that hit the primary markets in the first two weeks of November.
What explains this dichotomy. On the secondary markets front, the selling in equities is on account of concerns over inflation rate, interest rates and the valuations concerns highlighted by many of the large global brokers as well as by the RBI in its latest monthly bulletin.

That has kept the secondary market under pressure and the pressure is likely to continue until there is greater clarity on the macro front. 

However, the IPO flows could be the real challenge. Two major IPOs in the previous week viz. Paytm and Sapphire Foods are at a deep discount to their issue price.

That is unlikely to make the FPIs too happy and they are likely to be a little more wary participating in future anchor placements. The FPI enthusiasm would now largely depend on how the IPO markets perform. That is the challenge.