Foreign Investors Unload Record $12 Billion in Indian Stocks in March Amid Global Tensions

Market Update: Indian Equities Experience Record Fleeing by Foreign Investors

Foreign investors have offloaded a net $11.7 billion of local shares through March 25, according to Bloomberg-compiled data, setting the stage for the steepest monthly exodus ever. Total outflows this year have exceeded $13 billion, nearing levels seen a year ago.

The surge in energy costs, coupled with a weak rupee, nascent earnings recovery, and rich equity valuations, has worsened the outlook for Indian equities. Even before the war, investors were grappling with bearish global sentiment, and the oil shock has exacerbated the pressures.

Goldman Sachs Group Inc., Morgan Stanley, and UBS Global Wealth Management have all lowered their expectations for Indian equities, with Goldman strategists downgrading the market due to the threat of "higher-for-longer" energy prices to the country's growth outlook.

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The pivot away from India comes as global funds have pulled about $52 billion from emerging Asian equities, excluding China, since the Iran war began. This trend has led to more than $34 billion of outflows from Indian equities over the past two years through March, a period marked by underperformance in local shares.

Domestic institutional investors have absorbed much of the foreign selling, pumping in more than $13 billion so far this month. However, this support has yet to spark a recovery in the face of relentless foreign outflows.

Stock-market volatility remains elevated, signaling continued skepticism over an immediate recovery. The India NSE Volatility Index is trading at a four-year high, while similar gauges for other energy-import dependent countries like Japan and South Korea have eased from peaks reached earlier in the Iran conflict.