Foreign portfolio investors (FPIs) executed their largest sell-off in the Indian stock market history during March 2026, with ₹1.22 lakh crore in equity sales according to reports from Mint. This represents the highest monthly selling since October 2024, when FIIs offloaded Indian stocks worth ₹1.14 lakh crore. As reported by Sachin Sawrikar, Managing Partner at Artha Bharat Investment Managers, FIIs were net sellers on every single trading session in March, indicating this was not tactical profit-booking but a structural reallocation away from India and emerging markets more broadly. The latest data shows FIIs have sold off Indian stocks worth more than ₹1.30 lakh crore in the cash segment since the start of the US-Iran war on February 28. According to The Times of India, FPIs extended their heavy sell-off this week, pulling out a net ₹23,801 crore, with March recording substantial outflows of ₹1,17,775 crore, the highest monthly selling recorded so far this year.
The Middle East conflict has created a perfect storm of rising crude oil prices, depreciating rupee, and high bond yields that has spooked FIIs, according to Nandish Shah, AVP–PCG Research and Advisory at Motilal Oswal Financial Services. The crisis has also raised expectations that the US Fed may increase interest rates in the near term, contrary to earlier expectations of a rate cut, which reduces the appeal of emerging markets like India. Shah noted that FII holdings in the Nifty 500 would likely have come down further in the quarter ended March 2026, from a 10-quarter low of 18.4% in December 2025. The war in West Asia has shot up crude oil prices to multi-year high levels, dragged the Indian rupee to unprecedented lows, and prompted foreign institutional investors to hit the sell button again on the Indian equities after mild buying in February. As per The Times of India, crude oil prices rising above the $100 per barrel mark have also heightened concerns around inflation and India's import bill, given its reliance on imported energy.
The massive FPI selling has pushed Nifty 50 almost 11% lower in March, marking its worst monthly fall in six years, as reported by Mint. However, retail investors have provided crucial support through ₹75,000 crore in mutual fund cash inflows over the last month and ₹30,000 crore in SIP inflows monthly despite nearly nil returns over the past two years. According to the latest data, Indian stock market benchmarks have lost 10% each since the US-Iran war began on February 28, with the broader Nifty 500 index also plunging by 10%, with stocks falling up to 40%. Investors' wealth has plunged by more than ₹41 lakh crore over the period, with the cumulative market capitalisation of BSE-listed firms dropping from ₹463.5 lakh crore on February 27 to ₹422.4 lakh crore on April 2. As per The Times of India, experts believe that sustained selling by the FPIs have made Indian market valuations fair and in some segments attractive, but FPI inflows can happen only when there is de-escalation on the war front leading to decline in crude.
Analysts do not anticipate any meaningful reversal in FPI flows until the first half of FY27, with Vishad Turakhia from Equirus Securities noting that FII selling is likely to persist as fundamentals realign to geopolitical disruptions. The lack of policy initiatives to address foreign investors' concerns about depreciating rupee, falling markets, and capital gains tax computed in rupees while returns are measured in dollars compounds their aversion to Indian stocks. Sawrikar emphasized that India's structural vulnerability due to oil and gas import dependence means foreign portfolio capital is necessary as a buffer during crude price spikes. According to VK Vijayakumar, Chief Investment Strategist at Geojit Investments, the weakening rupee has been a key factor accelerating the outflows, with the rupee depreciating by about 4% since the war began and fears of further depreciation adding to the weakness. Despite the current volatility, experts hope for a market recovery if the US-Iran conflict resolves within weeks, with oil prices potentially falling by 10% to 20% quickly.
While uncertainty over the US-Iran war persists, experts hope for normalcy in the coming days, which could trigger a sharp rally in the Indian stock market. Since the recent correction has brought market valuations to fair levels, experts believe it is time to buy quality stocks for the long term. Axis Securities has maintained the December 2026 Nifty target at 28,080, but in a bear case scenario, the brokerage firm believes the index may drop to 23,865 by the end of the year. In a bull case scenario, Axis sees the Nifty at 29,480 by the end of December 2026. The brokerage firm's top picks include Bajaj Finance, SBI, Kotak Mahindra Bank, Bharti Airtel, Avenue Supermarts (DMart), Max Healthcare Institute, LG Electronics India, Nestle India, and Eternal from large-cap space, while Dalmia Bharat is its top pick from mid-cap segment.
