FPIs withdrew ₹21,000 crore last week amid the West Asia conflict; what to expect ahead?

The latest sell-off comes after foreign portfolio investors (FPIs) infused ₹22,615 crore into Indian equities in February, the highest monthly inflow in 17 months.

Prior to that, FPIs had been net sellers for three consecutive months. They withdrew ₹35,962 crore in January, ₹22,611 crore in December, and ₹3,765 crore in November, according to data from the depositories.

The latest outflows occurred during March 2-6, when FPIs sold equities worth about ₹21,000 crore in the cash market. March 3 was a trading holiday on account of Holi.

Market experts attributed the pullout primarily to the rising geopolitical tensions in West Asia. The US and Israel launched a major attack on Iran on February 28, which killed Iran's Supreme Leader Ayatollah Ali Khamenei, triggering conflict in the region.

Other reasons for the outflows include the rupee falling below 92 per dollar, high US Treasury yields attracting money back to safer investments, and a mixed early outlook for corporate earnings in Q4 FY26, especially due to pressure on profit margins in the IT and consumption sectors.

Himanshu Srivastava, Principal Manager Research at Morningstar Investment Research India, noted that higher crude prices increase risks related to inflation, the current account deficit, and currency stability, which typically weigh on foreign investor sentiment toward emerging markets.

Srivastava added that global investors have also shifted towards safer assets such as the US dollar amid rising uncertainty. The recent uptick in US Treasury yields during the week further contributed to capital outflows from emerging markets.

What lies ahead?

Looking ahead, experts said FPIs are unlikely to turn buyers until there is greater clarity on the geopolitical situation and crude prices ease.

“Brent crude trading above $90 per barrel is unfavourable for the Indian economy and equity markets,” an analyst said.

Despite the FPI selling, the market has continued to find support from domestic institutional investors (DIIs) and steady inflows through mutual fund systematic investment plans (SIPs).

Cues for next week

Developments related to the ongoing conflict in West Asia and its impact on crude oil prices would be the major driving factors for stock markets this week, analysts said.

Besides, global market trends and trading activity of foreign investors would also drive investors' sentiment.

"This week, movements in global crude oil prices and further geopolitical developments in West Asia will remain critical external variables influencing market direction. The week will also feature key macroeconomic releases that could shape near-term sentiment," an expert added.

Brent crude, the global oil benchmark, jumped 8.52% to $92.69 per barrel.

Last week, the BSE benchmark, SENSEX, tanked 2,368.29 points, or 2.91%, and the NIFTY50 index declined 728.2 points, or 2.89%.

Markets ended the holiday-shortened week with steep losses as escalating geopolitical tensions in West Asia and a sharp spike in crude oil prices weighed heavily on investor sentiment.