The Indian stock market's selloff deepened this week, with the benchmark Nifty ending 0.9% lower at 22,421.95 on Thursday and declining 14.25% so far this year. The market ended lower in all four trading sessions, with 45 of the 50 Nifty stocks recording losses. The selloff has wiped out nearly ₹26 lakh crore in market capitalisation of BSE-listed companies, dragging the total market capitalisation below ₹467 lakh crore. The Sensex has plunged 6,590 points over the past eight weeks, while the Nifty has lost 2,149 points. The selloff has intensified beyond the Middle East crisis, with the Sensex hitting a 52-week low of 71,293 on Thursday, even as oil prices dipped below $100 per barrel. According to The Economic Times, the latest crash came even as oil prices dipped below $100 per barrel, marking levels below those seen during the height of Middle East conflict.
Foreign portfolio investors turned net sellers in September, pulling out ₹2.69 trillion from Indian equity markets according to the latest NSDL data, marking a significant escalation from the previous ₹35,860 crore withdrawal. This selling came after FPIs invested ₹20,200 crore in July and ₹29,630 crore in August, making the September withdrawal particularly significant. The September selling also coincided with a steep correction of almost 6% each in both the Nifty 50 and Sensex. The outflows came after FPIs invested ₹20,200 crore in July and ₹29,630 crore in August, making the September withdrawal particularly significant. With the latest selling, FPIs have now withdrawn around ₹2.7 lakh crore from Indian equities in 2026, significantly higher than the ₹1.66 lakh crore outflow recorded during the entire 2025. As per The Hindu, Rajesh Singla, Fund Manager & CEO at Alpha AMC, attributed the selling to external factors including elevated crude prices amid Hormuz-related supply risks, a weak rupee, firm US bond yields, profit-booking following July-August inflows and rotation towards AI-led North Asian markets.
Foreign institutional investors have turned the most bearish on Indian markets in over two months as weak global macroeconomic signals have made Dalal Street investments less attractive. The foreign institutional investors' long-short ratio fell to only 8% at Thursday's close, the lowest level seen since July 23, according to Business Standard. The long-short ratio is a sentiment indicator for markets, with a lower ratio indicating that FII investors are bearish on the Indian market. Foreign funds are selling index futures or have shorted the market, showing low confidence in the growth prospects of Indian stocks. A Business Standard analysis showed that FII short positions have remained below the 20% mark on 159 of 182 trading days so far in 2026, and below 10% on 46 occasions. Unlike in the past, this low long-short ratio has not triggered a recovery, as the macro factors behind these short positions remain unchanged with rising bond yields and crude prices, along with a weaker rupee, providing little incentive for FIIs to cover their shorts.
Despite the bearish sentiment, technical analysts suggest the market may be approaching oversold territory. Vipin Kumar of Globe Capital Market said the short-term chart structure is in oversold territory, and the Nifty index has reached key structural support levels between the 22,180 and 21,740 spot zone. "Meanwhile, the long-short ratio has dropped to extreme lows, indicating that a potential bounce-back rally toward the 22,800-22,850 spot zone cannot be ruled out at this juncture," Kumar noted. However, he cautioned that given elevated crude oil prices driven by volatile geopolitical conditions and rising US Treasury yields, the chances of sustainability at higher levels remain low. Chandan Taparia of Motilal Oswal Financial Services said while the Nifty is now deeply oversold, a sustained recovery may remain elusive until fresh positive triggers emerge. He expects the Nifty to remain range-bound between 22,200 and 22,750, with any bounces meeting with selling pressure. The formation of a solid reversal pattern or stable base around these support levels will be a critical positive development for restoring bullish momentum.
Analysts identify five critical factors that must improve for foreign investors to return to Indian markets after the recent exodus. According to The Economic Times, the first priority is cooling of US bond yields, as the US 10-year Treasury yield climbed to 5.34% last week, its highest level since 2002. The second factor is crude oil price moderation, as elevated crude prices hurt India more than many peers due to the country's high oil import dependency. Third, rupee stability is essential, as the currency recently dropped to a two-month low amid global bond sell-offs and rising oil prices. Fourth, strong Q2 earnings are crucial for defending valuations, with companies expected to report good numbers along with positive management commentary. Fifth, portfolio rotation back to India requires India to show better risk-reward than AI-heavy markets like South Korea and Taiwan, which have attracted significant FPI capital. As per Gaur of Choice Broking, oil, US yields and the rupee "an unpleasant cocktail" for foreign investors, but if Brent retreats meaningfully, India's macro picture starts looking less vulnerable. The next catalyst will come from RBI's October policy meeting, with most economists expecting a 25-basis-point rate hike to 5.50% as inflation broadened and rupee pressure increased.
