Foreign portfolio investors (FPIs) pulled out ₹1.17 lakh crore just in March 2026, the highest ever outflow in a month on the back of the ongoing US-Iran war, which started on February 28. Meanwhile, in FY26, sold Indian equities worth ₹1.8 lakh crore, marking the highest annual outflow ever recorded in a financial year.
The heavy overseas selling in the last 1 month as well as in FY26, came during one of the most volatile periods for Indian markets in recent years, as the country also witnessed its worst rupee slide in 14 years. In just about four weeks, the lost 4%, adding to concerns over imported inflation, current account pressures and the broader macro outlook for India.
For foreign investors, Indian risk assets in FY26 appeared to be caught in a near-perfect storm. Multiple headwinds converged at once — the escalating Iran conflict, lingering uncertainty over global tariffs, relatively expensive market valuations, an AI-led decline in the technology industry, and nearly a 10% depreciation in the rupee against the U.S. dollar.
The latest financial year marked the second straight year of FPI outflows, underlining the persistent pressure on foreign sentiment towards Indian equities. In the previous financial year too, FPIs had withdrawn ₹1.24 lakh crore.
The impact on Indian equities was also clearly visible. The declined 5.1% in FY26, while the Sensex fell 7.1% during the financial year. Both benchmark indices may have ended the year with only marginal losses or even slight gains had it not been for the sharp selloff in March, when markets plunged over 11%.
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said the heavy FPI selling was driven by a combination of geopolitical stress, rupee weakness and fears over India’s macro outlook.
“The weakness in global equity markets following the war in West Asia, the steady depreciation of the rupee, fears of decline in remittances from the Gulf region and concerns surrounding the impact of high crude price on India’s growth and corporate earnings contributed to the sustained selling by FPIs.” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
He added that the trend was not unique to India, as foreign investors were also sellers in other emerging markets such as Taiwan and South Korea. That, he said, suggests the pressure is part of a wider global risk-off shift rather than a purely India-specific concern.
Will there be a trend reversal this month?
The key question for now is whether April can mark the beginning of a reversal in foreign investor sentiment after a bruising financial year. While the sharp selloff in March reflected panic over war, crude and currency weakness, analysts believe any recovery in flows will depend less on optimism alone and more on whether global risks actually begin to ease.
According to Vijayakumar, India’s relatively weak returns compared with both developed and emerging markets over the last 18 months have also contributed to FPI outflows. In his view, a sustained change in strategy would likely require an end to hostilities in West Asia along with a decline in crude oil prices.
That suggests that while market sentiment may improve on any signs of peace, actual foreign money may still take time to return in a meaningful way.
Meanwhile, Akshat Garg, Head – Research & Product at Choice Wealth, also believes that while a turnaround in flows is possible, it is unlikely to happen overnight.
“FPIs have clearly been on the back foot lately, with sharp outflows from Indian equities and bonds as the war pushed oil prices higher, revived inflation concerns, and put pressure on the rupee. If April brings a meaningful de-escalation, a trend reversal is possible—but it’s likely to be gradual rather than sudden.” said Akshat Garg, Head – Research & Product at Choice Wealth.
He added foreign investors usually wait for stability in key macro indicators before turning constructive again. That means crude prices, currency movement and visibility on growth will remain critical variables in determining whether the recent selling begins to reverse.
A more supportive external backdrop, if it emerges, could only improve the broader investment case for India.
Meanwhile, Pranay Aggarwal, Director and CEO of Stoxkart, highlighted that Indian markets could benefit from stronger investor confidence, better export prospects and reduced trade uncertainty if the global environment turns more favourable.
He said sectors such as IT services, pharmaceuticals, auto components and textiles may benefit from stronger demand from the U.S. market. He also noted that improved trade ties could support stronger FPI and FDI flows, help the rupee and strengthen India’s position as a major global manufacturing and investment destination. However, he maintained that the Iran-US war remains the key immediate concern for markets.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.