The escalating tensions in West Asia have altered the stance of overseas investors towards Asia’s third-largest economy, as they sharply trimmed their holdings in March amid concerns that elevated crude oil prices and gas shortages could hurt corporate earnings and India’s growth outlook.
FPIs have remained net sellers in all trading sessions in March, pulling out ₹1.12 lakh crore through 25 March, according to data from the National Securities Depository Ltd (NSDL). This implies an average daily outflow of around ₹6,235 crore.
If the selling continues at a similar pace over the remaining two trading sessions, total FPI outflows for March could reach approximately ₹, surpassing the previous record of ₹1.14 lakh crore seen in October 2024. The average daily outflow in October 2024 stood at ₹5,175 crore.
The heavy selling has sent the Nifty 50 to the lowest level in 11 months, while the Indian rupee has reached a record low of .
Although FPIs began 2026 by selling ₹36,000 crore in January, they briefly turned net buyers in February as corporate earnings showed signs of recovery, easing valuation concerns. Sentiment was also supported by an interim trade deal with the US. However, they quickly turned cautious again following the escalation of the US-Iran conflict.
In 2025, FPIs withdrew ₹1.66 lakh crore from Indian equities. However, the impact on the domestic market remained limited as the selling was largely absorbed by domestic institutional investors, which largely comprise mutual funds.
Crude surge, LNG disruption weigh on investor sentiment
One of the key factors behind the heavy selling by in March, according to analysts, has been elevated crude oil prices.
Brent hit a four-year high earlier this month amid concerns that the Strait of Hormuz could remain shut for a prolonged period, as Iran is using it to pressure the US to halt its attacks. This has effectively disrupted nearly 20% of global oil supplies, with the impact felt most by India, which imports around 85% of its crude requirements.
In addition, Qatar has halted liquefied natural gas (LNG) production following a series of attacks by Iran that severely damaged its facilities. This has further impacted India, which imports nearly 50% of its natural gas needs, with Qatar being a key supplier.
These concerns have also prompted global brokerages to turn cautious on India. Morgan Stanley downgraded India from “overweight” to “equal weight” in its latest portfolio reshuffle, citing the country as one of the Asian markets most exposed to potential disruptions in Qatari LNG supply.
This comes just a week after Morgan Stanley projected that emerging markets are poised for their strongest earnings growth phase since the 2002–2004 super cycle, driven by rising AI investments.
Meanwhile, for the Indian economy, cutting it to 5.9% for 2026 from an earlier estimate of 6.5%, reflecting higher energy prices and expectations of prolonged disruptions to energy trade through the Strait of Hormuz.
FPI outflows not limited to India, seen across Asia
Selling by FPIs has not only been limited to India; they have also pulled out billions of dollars across emerging markets.
They have sold about $52 billion of Asian stocks since the war in Iran began, putting the region on track for its biggest monthly outflow in Bloomberg-compiled data going back to 2009.
This month’s equity outflows have surpassed the pandemic-driven exodus of March 2020 and are more than double the losses seen in June 2022 in the wake of the Ukraine war
Asian shares have come under pressure this month, underperforming their US peers, which have remained relatively resilient thanks to the country’s status as a net energy exporter. A relatively stronger dollar and profit-taking in chip stocks have added to the strain, the report showed.
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