Indian equities: The worst may not be over — FPI sell‑offs (Mar 2026)

Indian equities plunged in late February–March as the US‑Israel‑Iran conflict and a related jump in oil prices triggered a wave of foreign portfolio investor selling. Markets recorded one of the largest monthly net outflows on record, amplifying a risk‑off move across emerging Asia.

The sequence began after the conflict escalated on February 28, 2026, lifting crude benchmarks and denting investor confidence. Bloomberg‑compiled data show overseas investors sold about $11.7 billion of Indian shares through March 25, while the rupee weakened materially against the dollar, compounding losses for foreign holders and accelerating capital flight. Several reports also noted trillions of rupiah in market value were wiped out over short periods.

Market impact was rapid: benchmark indices fell into technical correction territory, volatility gauges rose to multiyear highs, and domestic institutional buying only partially offset FPI exits. Higher energy costs also pressured corporate margins and the external balance, lifting the market risk premium and weighing on sectors sensitive to fuel and logistics costs.

In a broader economic context, the shock reintroduced external vulnerability for an energy‑importing economy. The combination of a weaker currency, higher import bills and capital outflows complicates the Reserve Bank of India (RBI)'s mandate, forcing policymakers to weigh exchange‑rate stability against domestic price pressures. Sustained geopolitical uncertainty would likely delay a meaningful return of foreign flows.

Analysts caution that further downside cannot be ruled out until there is clarity on the geopolitical front and oil prices retreat. Some portfolio managers see selective buying opportunities where company fundamentals remain intact, but most expect a bumpy recovery reliant on de‑escalation, lower crude, and renewed global risk appetite. Investors are advised to monitor external flow data and sectoral exposure closely in the near term.