Foreign investors have withdrawn more than $20 billion from Indian equities in the first four months of 2026, surpassing last year's record annual exit of $18.9 billion, according to The Economic Times. The bulk of the selling - $19 billion - has occurred since the Iran war began, with foreign institutional investors offloading Indian equities worth ₹17,140 crore last week alone, extending April's outflows to ₹43,967 crore. This represents a significant escalation from the previous year's performance, with the current outflows already exceeding the entire 2025 total.
Indian equity benchmarks Nifty 50 and Sensex have fallen 8.2% and 9.8% respectively so far this year, underperforming their Asian and emerging-market peers while the rupee has fallen to record lows against the U.S. dollar, as reported by The Economic Times. Financial shares have borne the brunt of the selling, with outflows of ₹799.81 billion ($8.44 billion), followed by information technology stocks that have seen withdrawals of about ₹220 billion. Investor sentiment toward software firms has weakened due to concerns over potential AI-led disruption, contributing to the broader market derating.
India, which imports 90% of its energy needs and relies heavily on supplies from the Middle East, is among the most vulnerable to the energy shock from the Iran war, according to The Economic Times. As reported by Lilian Chovin, head of asset allocation at UK-based private bank and wealth management firm Coutts, there is a greater propensity for markets like India, with high reliance on oil and food prices, to be impacted by the Middle East conflict. The country's heavy dependence on crude oil imports has made it particularly susceptible to geopolitical tensions in the region.
Despite the foreign outflows, domestic institutional buying has helped steady markets, with record local purchases of $15.4 billion in March offsetting the highest-ever monthly foreign outflows of $12.7 billion, as reported by The Economic Times. However, derivatives data suggests that the recent rally was largely driven by short covering rather than fresh bullish positioning. Foreign institutional investors continue to maintain a cautious stance, with the FII futures index long ratio declining to 0.13 from 0.15 in the previous series, indicating a defensive approach focused on reducing downside risks.
