Foreign portfolio investors (FPIs) turned big sellers in Indian stocks during the first week of March, withdrawing nearly Rs 21,000 crore (about $2.3 billion) over four trading sessions as global risk appetite weakened amid escalating tensions in the Middle East. The withdrawals took place between March 2 and 6 in the money market.
Trading activity during this period was limited to four sessions, as March 3 remained closed on the occasion of the Holi holiday. The fresh round of selling comes on the heels of a strong February when foreign investors pumped Rs 22,615 crore into Indian stocks, the highest monthly inflow in 17 months. However, before this rebound, FDI indices remained net sellers for three consecutive months. They withdrew Rs 35,962 crore in January, Rs 22,611 crore in December and Rs 3,765 crore in November, according to data from deposits.
Analysts said the recent flows were largely driven by rising geopolitical tensions in the Middle East after the United States and Israel launched a major attack on Iran on February 28 that killed Iranian Supreme Leader Ayatollah Ali Khamenei, sparking conflict in the region. Concerns about potential disruptions in the Strait of Hormuz pushed Brent crude prices above $90 a barrel, sparking global risk-averse sentiment, said Vakarjaved Khan, senior fundamental analyst at Angel One.
Khan also highlighted several additional pressures affecting foreign investors. These factors include a depreciation of the rupee beyond the 92 per dollar level, rising US Treasury yields returning capital to safe haven assets, and an uncertain early outlook for corporate earnings in the fourth quarter of fiscal 2026, particularly due to margin pressures in the IT and consumer sectors. “Uncertainty surrounding the conflict in the Middle East, the recent market correction, the vulnerability of the Indian economy to the sharp rise in crude oil prices, and the depreciation of the rupee have all contributed to the continued sell-off of FDI in the cash market,” said VK Vijayakumar, chief investment strategist at Geojit Investments. Rising crude oil prices raise concerns about inflation, current account deficit and currency stability, factors that typically dampen foreign investor sentiment towards emerging markets, said Himanshu Srivastava, principal research director at Morningstar Investment Research India. He also noted that global investors are increasingly shifting money into safer assets such as the US dollar amid rising uncertainty.
The recent rise in US Treasury yields during the week accelerated capital outflows from emerging markets. Looking ahead, Vijayakumar said foreign investors may remain cautious until the geopolitical situation becomes clearer and crude oil prices decline. “Brent crude trading above $90 per barrel is negative for the Indian economy and stock markets,” he said. Despite sustained selling by foreign investors, Indian markets continued to get support from domestic institutional investors (DIIs), coupled with steady inflows through mutual fund Systematic Investment Plans (SIPs).