Markets Going From Strength to Strength: Strong Domestic Flows Especially to Large Caps Driving Deal Activity

Indian markets have remained resilient, supported by strong inflows from domestic investors, even as rich valuations and a high global interest rate environment have led to relatively muted foreign inflows. Within this context, Foreign Institutional Investors (FIIs) have increased their exposure to sectors such as consumer services, capital goods, and telecom, while reducing their investments in financial services and construction.

Highlights

• Massive inflows into schemes prompted few fund houses to restrict lumpsum investment into small cap schemes and extend exit load cutoff to within a year from 15/30 days.
• Strong auto sales, driven by improved vehicle availability and increased freight movement that fueled replacement purchases, along with a bullish market outlook supported by strong demand for both residential and commercial players, have led to sector growth primarily driven by pricing expansion and new product launches.
• Secondary markets remained a preferred mode of exit for private equity and strategic investors, who offloaded stakes worth approximately USD 11 billion during the quarter, with large transactions reflecting the increasing depth of the markets as sizable stakes were absorbed in single deals, while promoters also sold stakes for reasons including regulatory compliance, debt repayment, and generating liquidity for other objectives.
• Primary markets witnessed smaller companies going public with a focus on raising growth capital, supported by several investor-friendly measures introduced by SEBI.
• We expect a pipeline of large IPOs over the next 18 months. Tech IPOs expected to add ~ USD 50-75 bn in market cap over next 2 years.