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Legendary investor Warren Buffett has never been a big fan of investing in the primary market. At the 2004 Berkshire Hathaway annual meeting, he explained, "An IPO situation more closely approximates a negotiated deal. The seller decides when to come to market in most cases, and they don't necessarily pick a time that's good for you."

Buffett is known for his patience, waiting for stocks to reach his comfort zone before investing. The same can't be said for today's breed of fund managers.

Reports indicate that foreign portfolio investors (FPIs) increasingly focus on the primary market while gradually booking profits in the secondary market. Their investment through IPOs has reached a four-year high of $6.4 billion while they have sold shares worth $4.5 billion in the secondary market.

FPIs have been buyers in the primary market for the past 11 months, investing $8.3 billion. IPO is also the preferred vehicle for Indian funds with a cash pile of over Rs 1.7 lakh crore.

So, what's drawing fund managers to the primary market? The answer is simple: valuation. With many stocks trading at all-time high valuations, fund managers are hesitant to hold onto them, especially given the global uncertainties.

But what about Buffett's concern?

In a bull market, it's not about timing the market but rather the time spent in the market that offers the greatest compounding benefits. That said, FPIs are not investing in every company entering the market. They are selective, choosing to allocate significant funds where they perceive value.

Typically, FPIs participate as anchor investors, allowing them to secure shares at the IPO price and ensure they receive a desired allocation.

India is rapidly emerging as a preferred investment destination as global growth slows. Reports indicate that in 2024 alone, half a dozen foreign funds established offices in the country. According to PwC India, over 800 active PE/VC funds have invested over $50 billion since January 2023, a figure expected to grow as more funds turn their attention to India.

The recent successful exits and substantial returns that many private equity players have achieved through offers for sale or secondary market sales have caught the eye of global investors. While Buffett may have his reasons for steering clear of IPOs, an entire private equity industry thrives on investing in unlisted companies and using IPOs to exit in part at times. Many of these funds now see India as an attractive opportunity.

As the Indian economy expands and new entrepreneurs emerge, global investors with a higher risk appetite will increasingly support their ventures, further solidifying India's status as a key market for private equity investments.

Investing insights from our research team

Balaji Amines: What is the future of this import-substitution play?

Royal Orchid Hotels: Why is it the right time to enter the stock?

Nazara Technologies: Acquisitions to fuel growth

Gabriel India: Shine on the car sunroof segment

What else are we reading? 

Can banks hit the jackpot as private capex heads for Goldilocks zone in FY25?

Why India's bank credit to GDP ratio is low when there's no shortage of banks

Chart of the day| How Technology has transformed the trading landscape

Growth takes priority for retail investors over quality

Demand boom drives new home launches from realty firms

Cooling US jobs market looms over central bankers at Jackson Hole (republished from the FT)

Whatever happened to the wisdom of the bond market? (republished from the FT)

Lateral entry in government is essential for highly specialised functions, not everywhere

Organic Farming vs Food Security: India should focus on effective plant protection and sustainability

Technical Picks: Bharat Heavy Electricals, Greaves Cotton, Angel One and REC (These are published every trading day before markets open and can be read on the app).
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