Foreign investors fleeing Indian market, dump $12 bn Indian equities amid Iran war

In March 2026, Foreign Portfolio Investors (FPIs) have offloaded a record amount of money from the Indian equities market, driven by political instability and macroeconomic pressures. According to one Bloomberg calculation as of March 25, Foreign investors have pulled off $11.7 billion of local shares. This put the squeeze on local shares to record levels, as seen almost a year ago. Domestic Institutional Investors have absorbed the record outflows by pumping in over $13 billion as markets remain volatile. The record negative inflow in March comes after a correction in February 2026. But this hints that the global bearish market has trickled down to the Indian domestic market.

The total FPI outflow for the calendar year has already surpassed the $15.2 billion or ₹1.27 lakh crore. The last highest outflow in a single month was ₹94,017 crore set in October 2024. March 2026 has already surpassed it. The Financial Service sector has been hit the hardest. The FPI outflow in the first half of March was ₹31,831 crore.

Also Read: Gold bearish, dollar index bullish, treasury yields higher amid Iran war- Why is the safe haven crashing?

What does this mean for the Indian market?

There is a sharp correction in the Indian market, as investors move from the riskier emerging markets. The Indian rupee has hit a record low at 95.20 against the US dollar, adding pressure on foreign investors' returns. At the same time, rising treasury yields have boosted the attraction of dollar-driven assets. Analysts suggest that the longer the conflict continues, the steeper the outcome will be. As the Indian equity market's performance is tied to the oil prices, which are directly related to the West Asian geo politics suggest Saion Mukherjee, head of equity research in Nomura. Analysts at Goldman Sachs, Morgan Stanley and UBS Global Wealth Management all have downgraded expectation from Indian equities. They are currently projecting a "higher-for-longer" outlook. With energy prices expected to remain above $100 a barrel for a longer duration and will increase the import cost and inturn will widen the CAD (current account deficit). The interest rates will likely stay high, making borrowing harder and less capital investment in the private sector. “As of now, it is a grim picture, and there is no immediate catalyst suggesting it is changing,” said Siddhart Chatterjee, a portfolio manager with Franklin Templeton Investment Solutions. In a short time ther will be a liquidity crunch; however, some analysts suggest that in the long term, the reduced FPI dependence was good as both domestic institutions and retail investors now help stabilise volatility.