Factors contributing to the outflows include rupee depreciation beyond the 92-per-dollar level, elevated US Treasury yields drawing capital back to safe-haven assets, and mixed early outlook for Q4 FY26 corporate earnings, particularly margin pressures in the IT and consumption sectors.
Illustration: Dominic Xavier/Rediff
Key Points
- FPIs had been net sellers for three consecutive months.
- FPIs withdrew Rs 35,962 crore in January, Rs 22,611 crore in December, and Rs 3,765 crore in November
- Market experts attributed the pullout primarily to the rising geopolitical tensions in West Asia.
- Other factor contributing to the outflows include rupee depreciation beyond the 92-per-dollar level.
- Global investors have shifted towards safer assets such as the US dollar amid rising uncertainty.
- FPIs are unlikely to return as buyers any time soon.
Foreign investors pulled out Rs 21,000 crore (around $2.3 billion) from Indian equities over the last four trading sessions amid deteriorating global risk sentiment triggered by the West Asia crisis.
The latest sell-off comes after foreign portfolio investors (FPIs) infused Rs 22,615 crore into Indian equities in February, the highest monthly inflow in 17 months.
Prior to that, FPIs had been net sellers for three consecutive months.
They withdrew Rs 35,962 crore in January, Rs 22,611 crore in December, and Rs 3,765 crore in November, according to data from the depositories.
The latest outflows occurred during March 2-6, when FPIs sold equities worth about Rs 21,000 crore in the cash market. March 3 was a trading holiday on account of Holi.
What market experts say
Market experts attributed the pullout primarily to the rising geopolitical tensions in West Asia.
The US and Israel launched a major attack on Iran on February 28 which killed Iran’s Supreme Leader Ayatollah Ali Khamenei, triggering conflict in the region.
Vaqarjaved Khan, senior fundamental analyst at Angel One, said fears of potential disruptions in the Strait of Hormuz pushed Brent crude prices above $90 per barrel, triggering a global risk-off sentiment.
What contributed to the outflows
Other factors contributing to the outflows include rupee depreciation beyond the 92-per-dollar level, elevated US Treasury yields drawing capital back to safe-haven assets, and mixed early outlook for Q4 FY26 corporate earnings, particularly margin pressures in the IT and consumption sectors, he added.
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said, “uncertainty surrounding the Middle East conflict, the recent market correction, the Indian economy’s vulnerability to a sharp rise in crude prices, and the depreciation of the rupee have all contributed to sustained FPI selling in the cash market.”
India, noted that higher crude prices increase risks related to inflation, the current account deficit, and currency stability, which typically weigh on foreign investor sentiment toward emerging markets.
He added that global investors have also shifted towards safer assets such as the US dollar amid rising uncertainty.
The recent uptick in US Treasury yields during the week further contributed to capital outflows from emerging markets.
Future of FPIs
Going ahead, Vijayakumar said FPIs are unlikely to return as buyers until there is greater clarity on the geopolitical situation and crude prices moderate.
“Brent crude trading above $90 per barrel is negative for the Indian economy and equity markets,” he said.
Despite the FPI selling, the market has continued to find support from domestic institutional investors (DIIs) and steady inflows through mutual fund systematic investment plans (SIPs).
