India’s equity markets are seeing a renewed wave of optimism as foreign institutional investors (FIIs) make a strong comeback after a prolonged period of heavy outflows. In May 2025, overseas investors pumped in a record-breaking $5.5 billion through block trades, marking the highest monthly total in almost a year. This surge in inflows is being seen as a key turning point for Indian equities, potentially paving the way for a revival in primary markets like Initial Public Offerings (IPOs).

Massive Rebound in Foreign Investment

According to market data, foreign investors had withdrawn nearly $29 billion from Indian stocks between October and March, driven by concerns around high valuations, global economic uncertainty, and geopolitical tensions. However, the tables turned in April and May, when $3 billion worth of Indian stocks were snapped up by overseas investors.

What fuelled this sudden reversal? The answer lies in the large-scale block deals and the underlying resilience of the Indian economy.

Block Trades Drive Inflows

Block trades – where a large number of shares are bought or sold by institutional investors in a single transaction – played a pivotal role in bringing back foreign capital. In May alone, $5.5 billion worth of block trades were executed, dwarfing April’s total of just $220 million.

Among the headline deals:

• British American Tobacco offloaded a $1.51 billion stake in ITC.

• IndiGo co-founder Rakesh Gangwal sold a 5.7% stake worth $1.36 billion.

• Singtel sold $1.5 billion worth of Bharti Airtel shares.

Bankers involved in these transactions stated that the strong investor demand led to an upsizing of these block deals, indicating a renewed appetite for Indian assets.

High-Quality Global Funds Lead the Charge

Sunil Khaitan, Managing Director at Goldman Sachs India, noted that high-quality, long-only global accounts are showing conviction in Indian markets again. While some investors remain cautious, waiting for more reasonable valuation levels, a majority of the capital inflows are from seasoned India-focused investors who understand the local dynamics and had been waiting for the right entry point.

Abhinav Bharti, head of JPMorgan’s India equity capital market business, echoed similar views. He highlighted that investors who had stayed away due to valuation concerns are now re-entering the Indian market, spurred by attractive deals and a stable macroeconomic outlook.

IPO Revival Could Be on the Horizon

Historically, block trade activity has often been a precursor to IPO market recovery. With foreign liquidity improving, market participants are anticipating renewed activity in the primary market in the coming quarters. This is crucial for companies looking to raise capital and for the broader capital market ecosystem.

Economic Stability Boosting Investor Confidence

India's macroeconomic performance has played a big role in boosting investor sentiment. According to Arvind Vashistha, Head of ECM at Citigroup India, a combination of fiscal discipline, tax cuts, and interest rate adjustments has helped build a favourable investment environment.

He added that foreign investors now perceive India as an attractive growth destination, especially when compared with other emerging markets.

Sectoral Preferences and Strategic Buying

Portfolio managers like Gary Tan from Allspring Global Investments say they are selectively adding Indian stocks, particularly in sectors like:

• Banking

• Telecommunications

• Diversified Conglomerates

While Tan remains underweight on India due to pockets of high valuations, the recent pullbacks in prices offered a compelling entry opportunity.

Market Outlook

The broader Indian indices have also supported the bullish sentiment. The Nifty 50 index rose 6% since early April, further fueled by:

• Paused US tariffs

• Strong economic data

• Investor sentiment turning favourable

This market momentum is expected to continue through Q2 and Q3 of FY2025, especially if foreign investor participation remains consistent.

Looking Ahead

While some caution remains, especially around elevated valuations in certain sectors, the overall tone of foreign investor sentiment has dramatically improved. The $5.5 billion May inflow, strong block trades, and early signs of an IPO revival paint a promising picture for Indian capital markets in the second half of the year.

For investors, this means:

• Improved market liquidity

• Greater institutional participation

• Potential for high-quality investment opportunities

Market watchers will be keeping a close eye on upcoming IPOs, policy decisions by the RBI, and global economic developments that could influence foreign fund flows in the months ahead.

Conclusion

In summary, May 2025 marked a decisive shift in foreign investor sentiment toward Indian equities. With $5.5 billion worth of block trades, backed by deep-pocketed global funds, the Indian equity market appears poised for a new phase of growth and stability. If this trend sustains, India could regain its position as a top investment destination among emerging markets.

The Upcoming IPOs in this week and coming weeks are Ganga Bath Fittings, Victory Electric Vehicles International, Wagons Learning.

The Current active IPO are 3B Films

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