The surge has been mainly driven by a recent rally in state-run stocks and value buying, dealers say.
The Indian government was seeking to raise around $500 million by selling partial stakes in 10 state-owned companies via an exchange-traded fund.
Shares of India's state entities tend to fall when the government announces a stake sale. The ETF structure makes it harder for hedge funds to anticipate disposals. It also allows India to offload stakes in less attractive companies at a similar discount to more sought-after ones.
However, institutional investors remain wary of participating in the CPSE ETF.
"It's better for institutional investors to buy individual stocks than to invest in a basket of securities," said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance.