Foreign investors have pulled out Rs 21,000 crore (about USD 2.3 billion) from Indian equities in the last four trading sessions amid worsening global risk sentiment due to the West Asia crisis. This latest selloff came after foreign portfolio investors (FPIs) had infused Rs 22,615 crore into Indian equities in February, the highest monthly inflow in 17 months. Earlier, FPIs had been net sellers for three consecutive months. According to depository data, they withdrew Rs 35,962 crore in January, Rs 22,611 crore in December and Rs 3,765 crore in November.
The latest outflow 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 due to Holi. Market experts cited the increasing geopolitical tension in West Asia as the main reason for this withdrawal. The US and Israel launched a major attack on Iran on February 28, killing Iran’s Supreme Leader Ayatollah Ali Khamenei, sparking fighting in the region.
Why did sentiment deteriorate?
Wakarjaved Khan, senior fundamental analyst at Angel One, said Brent crude prices rose above USD 90 per barrel on fears of possible blockages in the Strait of Hormuz, triggering risk-off sentiment around the world. He further said that other factors contributing to the outflows include rupee weakening above 92-per-dollar level, capital moving back to safe-haven assets due to rise in US Treasury yields, and initial mixed outlook for Q4 FY26 corporate earnings, especially due to margin pressure in IT and consumption sectors.
These reasons increased the risk
VK Vijayakumar, Chief Investment Strategist, Geojit Investments, said that uncertainty over the Middle East war, recent market correction, weakness of the Indian economy due to sharp rise in crude prices, and depreciation of the rupee, all have contributed to the continuous selling by FPIs in the cash market. Himanshu Srivastava, Principal Manager Research, Morningstar Investment Research India, said higher crude oil prices increase risks related to inflation, current account deficit and currency stability, which generally weigh on foreign investors’ sentiment towards emerging markets. He said that amid increasing uncertainty, global investors have also shifted towards safe assets like US dollar. The recent rise in US Treasury yields this week further contributed to capital outflows from emerging markets.
Will the selling continue further?
Further, Vijayakumar said that unless there is more clarity on the geopolitical situation and crude oil prices do not come down, FPIs are unlikely to come back as buyers. He said that Brent crude trading above USD 90 per barrel is negative for the Indian economy and equity markets. Despite selling by FPIs, the market continues to be supported by inflows from domestic institutional investors (DIIs) and mutual fund systematic investment plans (SIPs).