Blasé Capital IPOs vs Rupee

Most experts are surprised that net inflows of foreign direct investment (FDI) have declined to near-nothing. A few see this as a strong point for the economy. According to them, the reason for this trend is because Indian firms invest huge amounts to start greenfield projects overseas, or take over foreign companies. This implies that Indian businesses have emerged as the new MNCs, and can compete with the global firms. This augurs well for the manufacturing and services sectors. Higher investments abroad mean that Indians are more confident, and have the cash flows to buy overseas firms.

However, many analysts feel that the reason for the low, or near-zero, net FDI is because of the flood of IPOs (Initial Public Offerings). Last year was one of the best times for new issues, which raised huge amounts from institutional and retail investors. Indeed, even as the foreign institutional investors (FIIs) sold in the secondary market, they queued up to buy new stocks. Towards the end of 2025, domestic retail investors adopted the same approach, as they booked profits from the sales, and hoped to earn more from the listing gains in IPOs.

There is a more hidden link between the IPOs, and low net FDI inflows. A hefty proportion of the amounts mopped up through IPOs have not gone to the companies, but to their large original investors, which include the founders, angel investors, venture capitalists, and private equity players. These investors cashed out during the issues to book profits on their investments. Many of them are foreigners, and the money goes out as dollars and pounds. According to a media report, “India’s IPO boom is unlocking big exits for the global investors,” who waited patiently to earn attractive returns.

Of course, such a massive outgo of foreign exchange puts pressure on the rupee since there is a growing demand for the dollars. Thus, IPO-related exits are among the major reasons for the falling rupee, which weakened to Rs 90 to a dollar. Although the interventions by the Reserve Bank of India have stemmed the fall in the recent past, more IPOs, and possibly bigger ones, are expected in 2026. If these too are associated with the sales by the existing foreign investors, it will put additional downward pressure on the Indian currency. Thus, one can assume that the rupee can weaken further.

Remember, the IPO boom last year was not a result of a boom in the stock markets. Indian stock indices stayed almost flat for the first nine months of 2025. The returns from the Sensex and Nifty were near zero. Only in the last three months of the year did the markets revive, and went up. The boom was not secular, and affected select stocks. GST 2.0 was the major trigger, as consumer demand went up, and several sectors gained from higher revenues, and profits. If this was the case in 2025, imagine what can happen in 2026, as most analysts predict that the two indices are likely to go up.

A fair estimate among the experts is that the Sensex may cross the magic figure of 1,00,000 points in 2026. This implies a return of 17-18 per cent. Morgan Stanley, however, expects the index to be at 1,07,000 po by December2026, which means a gain of more than 25 per cent. There is a consensus that corporate earnings will perk up in 2026 due to GST reforms, stronger-than-expected growth, low inflation, and changes in personal income tax. Hence, this year’s upswing in stock prices will be driven by earnings, and profits. The view is that higher profits will bring down valuations. Thus, stocks will prove to be more attractive to potential and existing investors.

Obviously, firms may desire to launch more IPOs to raise higher amounts. Existing investors, including the foreigners, will wish to cash out at high premiums. Remember, in 2025, several start-ups opted for IPOs. These included digital firms, and online platforms. Many of them were loss-making, but managed high premiums because of revenue growths in the recent past. Thus, investors were willing to pay more now for future profits. This trend may continue, or even increase, as a booming market will sway start-ups. If this dents India’s net FDI flows in 2026, the rupee may be in trouble.

However, a few factors can save the Indian currency. The first is the reversal of sales in the second market by the FIIs. In 2025, they were net sellers, although they were excited by the other emerging markets. If this trend reverses, huge foreign inflows can be expected. This will buoy the rupee, and act as a counter to IPO-related outflows. If India signs the bilateral pact with the US, trade will flourish. Although the imports from America may go up, so will the Indian exports to that nation. If the rise in exports is higher than the imports, it will cushion, and stabilise the Indian currency. Hence, there will be pressures and counter-pressures. One will need to see which ones, positive or negative, carry more force and momentum.