Escalating geopolitical tensions and a weakening rupee are driving a significant outflow of foreign investment from Indian equities, raising concerns about economic growth and corporate earnings.
Illustration: Dominic Xavier/Rediff
Key Points
- Foreign investors have withdrawn over Rs 88,000 crore from Indian equities in March due to escalating tensions in West Asia and a weakening rupee.
- The outflow is driven by concerns over the impact of elevated crude oil prices on India’s economic growth and corporate earnings.
- Rising US Treasury yields are making dollar-denominated assets more attractive, leading to capital flight from emerging markets like India.
- Analysts predict a cautious near-term outlook, with continued volatility in oil prices and geopolitical tensions potentially sustaining outflows from Indian equities.
- Financial services have been particularly affected, bearing the brunt of the FPI selling pressure.
Foreign investors have pulled out Rs 88,180 crore (about $9.6 billion) from Indian equities so far this month, weighed down by escalating tensions in West Asia, a weakening rupee and concerns over the impact of elevated crude oil prices on India’s growth and corporate earnings.
The sharp sell-off follows a strong rebound in February, when foreign portfolio investors (FPIs) pumped in Rs 22,615 crore, the highest monthly inflow in 17 months, according to NSDL data.
With the latest withdrawals, total FPI outflows have crossed the Rs 1 lakh crore-mark so far in 2026.
In March (till March 20), FPIs have remained net sellers on every trading day, offloading equities worth Rs 88,180 crore in the cash market. However, the outflow is still lower than the record monthly exodus of Rs 94,017 crore seen in October 2024.
Factors Contributing to the FPI Outflow
Market participants attributed the sustained selling pressure to global macroeconomic headwinds and heightened geopolitical uncertainty.
Vaqarjaved Khan, Senior Fundamental Analyst at Angel One, said the primary trigger has been the sharp escalation in Middle East tensions, with fears of prolonged conflict and potential disruption to the Strait of Hormuz pushing Brent crude above $100, fuelling a classic risk-off move.
He added that the trend has been exacerbated by the rupee hovering near Rs 92 against the US dollar, elevated US bond yields, profit-booking after the February inflows, and mixed Q4 earnings outlook indicating margin pressures in key sectors.
Himanshu Srivastava, Principal Manager Research at Morningstar Investment Research India, said the rising US Treasury yields as another key driver.
Higher yields have improved the relative attractiveness of dollar-denominated assets, prompting capital to move away from emerging markets like India. This shift is typically accompanied by a stronger dollar and tighter global liquidity, further dampening sentiment towards emerging market equities.
Echoing similar concerns, V K Vijayakumar, Chief Investment Strategist at Geojit Investments, said the conflict in West Asia has intensified FPI selling.
He noted that weakness in global equity markets, continued rupee depreciation and worries over the impact of high crude prices on India’s growth and earnings have all weighed on investor sentiment.
Sectorally, financial services bore the brunt of the selling, with FPIs offloading shares worth Rs 31,831 crore during the fortnight ended March 15.
Outlook for Indian Equities
Looking ahead, analysts expect the near-term outlook to remain cautious.
Khan said continued volatility in oil prices or further escalation in geopolitical tensions could sustain outflows. However, any signs of de-escalation, strong support from domestic institutional investors (DIIs), or positive earnings surprises may help stabilise markets and trigger selective buying.
According to Vijayakumar, a reversal in FPI flows is likely only once geopolitical tensions ease and broader market stability returns.
