Dalal Street Divergence: IPOs Attract Billions Amid Record Outflows

India's stock market continues to bleed, with the Sensex down almost 16% from its lifetime intraday high. However, a striking divergence is emerging in the primary market.

Despite the exodus of foreign investors, Initial Public Offerings (IPOs) are seeing strong investor interest, with foreign portfolio investors (FPIs) investing $1 billion (Rs 9,676 crore) in IPOs in September, even as they sold $4.8 billion (Rs 45,537 crore) worth of listed equities.

"Capital is simply being re-allocated from high-valuation secondary equities into higher-growth primary issuances to optimize returns," says Sneha Poddar, VP of Research at Motilal Oswal Financial Services. "IPOs offer a fixed price, often at a discount to listed peers, and a sizeable allocation.

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So foreign investors are cutting where valuations look stretched and adding where entry looks better," adds Ratiraj Tibrewal, CEO of Choice Capital Advisors.

Foreign portfolio investors (FPIs) have sold Rs 2,95,971 crore through the exchanges but put Rs 54,398 crore into IPOs in the first nine months of 2026, according to data. In the first nine months of 2026, FPIs poured in $5.9 billion into the primary market while pulling out $33.7 billion from listed stocks.

Retail investors are also displaying a similar shift. With after buying Rs 42,774 crore worth of listed shares in the June quarter. They sold Rs 5,674 crore in July and August. Meanwhile, investing more than Rs 12,618 crore in IPOs, sharply up from Rs 1,307 crore in the preceding quarter.

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"Near-term volatility will continue because of US yields, crude prices and foreign outflows. The domestic base is strong, though: earnings are recovering and SIP flows are steady," says Ratiraj Tibrewal. "Domestic investors now own more of the market than foreign investors.

Valuations aren't cheap, so returns should track earnings growth. Quality large caps should hold up better than expensive small and mid caps," he adds.

Despite the ongoing bloodbath in Indian equities, market experts continue to maintain a constructive long-term outlook driven by strong domestic fundamentals.