Foreign institutional investors have continuously divested from Indian stocks since early March, amid the escalating conflict between Iran and the United States. Experts have identified primary reasons for these ongoing outflows, their likely destinations, and the factors required to encourage a return to Indian markets.
Between March 2 and April 9, foreign investors net sold Indian equities valued at Rs 1.6 lakh crore over 25 straight sessions. The selling extended to 27 consecutive days starting late February. This persistent liquidation contributed significantly to the sharp decline on Indian exchanges, erasing substantial investor value in March. During that period, the Sensex and Nifty dropped more than 11%, while oil prices surged due to disruptions in the Strait of Hormuz.
April started on a positive note with ceasefire discussions boosting market confidence. The Sensex and Nifty rose over 6% in the past week. Despite this, foreign investors stayed wary, netting sales of over Rs 18,260 crore in the first two April sessions and more than Rs 21,380 crore from Monday to Thursday last week.
On Friday, however, foreign investors became net purchasers, acquiring Indian shares worth Rs 672 crore on April 10, according to exchange data. This ended the 27-session selling run, offering some optimism. It remains unclear if this signals a lasting shift or a temporary reversal.
Analysts recommend vigilance. ‘Following the unprecedented Rs 1,22,182 crore outflows in March, foreign portfolio investors persisted with sales in April. By April 11, total outflows via exchanges reached Rs 48,905 crore, bringing the 2026 year-to-date figure to Rs 1,90,046 crore,’ stated VK Vijayakumar, Chief Investment Strategist at Geojit Investments.
The West Asian conflict’s energy disruptions, potential effects on India’s economy, and ongoing rupee weakening have kept investors in selling mode, experts say. ‘Markets in South Korea and Taiwan appear more appealing to foreign investors, as they anticipate stronger earnings growth compared to India’s moderate projections for FY27,’ Vijayakumar explained.
The market’s steep drop post-conflict has resulted in reasonable valuations, though not yet attractive enough for major buying, he added.
‘Robust equity mutual fund inflows of Rs 40,450 crore and systematic investment plan contributions of Rs 32,087 crore in March support the market. These strong domestic investments mean foreign selling has limited overall impact,’ Vijayakumar observed.
Still, a shift to buying by foreign investors hinges on West Asian developments and oil prices. ‘De-escalation and a notable drop in crude could preserve India’s economic stability. A prolonged conflict would harm the economy, making foreign buying unlikely,’ he concluded.
According to JM Financial, foreign investors sold $13.6 billion in Indian equities in March. Over the past year, primary markets received Rs 70,800 crore in foreign inflows, while secondary markets saw Rs 2,66,400 crore in outflows. Sectors like banking, finance, insurance, automobiles, telecommunications, consumer goods, real estate, pharmaceuticals, and energy experienced the largest outflows, with capital goods being the sole sector to attract inflows in March.
