Foreign portfolio investors unloaded a staggering $12.3 billion from India’s equity markets in March, marking the largest monthly outflow ever recorded. The surge in selling comes amid rising tensions in the Middle East, a weakening rupee, and worries about soaring crude oil prices dragging down India’s growth prospects.
March Sees rare FPI Outflow
Foreign investors dumped Rs 1.14 lakh crore (about $12.3 billion) from Indian stocks in March, shattering the previous record set in October 2024 when Rs 94,017 crore fled the market. With one trading day left in March, the exodus could get even bigger.
So far this year, foreign portfolio investors (FPIs) have pulled out Rs 1.27 lakh crore, signaling persistent caution. According to National Securities Depository Limited (NSDL) data, FPIs sold equities worth Rs 1.13 lakh crore in the cash market alone through March 27.
Just a month earlier, the story was very different. February witnessed a strong rebound, with FPIs pumping in Rs 22,615 crore — the biggest monthly inflow in 17 months. But the optimism quickly evaporated as geopolitical risks flared up.
War in West Asia Sparks Global Market Jitters
The latest sell-off is tied closely to the escalating conflict in West Asia. The war has rattled global markets, triggering a widespread risk-off mood that’s hit emerging markets hard. Indian equities haven't been spared.
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, pointed to several overlapping factors behind the sell-off. He highlighted the global equity market downturn following the war, the rupee’s steady slide, and fears that remittances from the Gulf region could shrink, hitting India’s economy.
Crude oil prices are also a worry. Elevated oil prices raise costs for Indian companies and consumers alike, potentially slowing economic growth and squeezing corporate profits. These fears have pressured foreign investors to cut exposure.
US Bond Yields and Liquidity Tightening Add Pressure
Himanshu Srivastava, Principal Manager Research at Morningstar Investment Research India, noted that rising US bond yields and tighter global liquidity have made fixed income markets in developed countries more attractive relative to equities in emerging markets.
As a result, FPIs have shifted money out of Indian stocks to safer, higher-yielding assets elsewhere. Indian markets still trade at relatively high valuations compared to other emerging economies, encouraging some investors to book profits and reallocate capital.
South Korea and Taiwan have also seen foreign selling, reflecting a broader retreat from emerging markets amid global uncertainty.
Currency Woes Compound the Problem
The Indian rupee’s depreciation against the dollar has compounded investor worries. A weaker rupee means foreign investors get less return when converting rupee gains back into their home currencies, reducing the appeal of Indian assets.
This trend also fuels inflation by making imports more expensive, which could force the Reserve Bank of India to keep interest rates higher for longer — another factor that can weigh on equity markets.
Remittances from the Gulf, a key source of income for many Indian households, are now under threat due to the conflict. Any drop in these inflows could hurt consumer spending and dampen economic momentum.
The combination of geopolitical tensions, rising oil prices, a shaky rupee, and shifting global liquidity has pushed foreign investors to the sidelines, leaving Indian equities vulnerable. Whether markets can regain foreign interest depends on how soon the conflict eases and if India’s economic fundamentals can withstand these headwinds.
