Middle East War Deterioration Leads to Record Outflows of Rs 1.1 Lakh Crore from Indian Markets in March

Foreign Institutional Investors Unload Indian Equities in Record Monthly Outflows

Foreign Institutional Investors (FIIs) executed a massive sell-off in Indian equities during March 2026, resulting in the largest monthly capital outflows in recent history. The total withdrawal by FIIs exceeded Rs 1.1 lakh crore, surpassing the previous record of Rs 94,000-crore withdrawal in October 2024.

The sustained nature of these outflows highlights a decisive retreat by foreign investors from Indian equity markets. The cumulative sell-off of over Rs 1.11 lakh crore places this episode among the most significant in the history of Indian capital markets. The primary catalyst for this large-scale withdrawal has been escalating geopolitical tensions in West Asia, which have heightened global uncertainty and risk aversion.

The benchmark Nifty 50 index has experienced a significant correction over the past three months, declining by more than 15% from its peak levels. Following the outbreak of conflict on February 28, 2026, the market has recorded five consecutive weeks of losses. Out of the 15% decline in the last 3 months, the Nifty has declined by more than 13% in the last month alone since the beginning of the conflict.

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A weakening Indian rupee, which breached the Rs 95 mark against the US dollar, and a sharp rise in crude oil prices, increasing inflationary concerns and widening India's current account deficit are among the key reasons for the foreign investors keeping the Indian equities at an arm's length.

A comparison of the FII outflows and DII buying in March 2026 is as follows:

Domestic Institutional Investors (DIIs) have played a stabilizing role, partially offsetting the impact of FII outflows through consistent buying. However, their support has not been sufficient to fully counterbalance the scale of foreign selling, leaving the market under continued pressure.

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According to VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited, the poor returns from India vis-a-vis other markets during the last eighteen months is the principal reason for FPI's indifference towards India. The sustained selling strategy by FPIs is likely to change only when there is an end to the hostilities in West Asia and a decline in crude prices.