Foreign portfolio investors (FPIs) may have turned net equity buyers in recent sessions, but their cumulative outflows in 2026, so far, have already exceeded those seen in any full year previously. Their net selloff so far stands at about ₹1.68 trillion.
March accounted for the bulk of the exodus, as the war in West Asia drove a sharp spike in oil prices. FPIs sold Indian equities worth ₹1.1 trillion during the month.
Flows had briefly turned positive in February, supported by optimism over India’s trade negotiations with the European Union and a US decision to ease tariffs on Indian goods. The conflict involving the US-Israel combine and Iran has since pushed investors back into riskoff mode.
The conflict disrupted energy markets after Iran targeted regional infrastructure and blocked shipments through the Strait of Hormuz, a key artery for global oil and gas flows that handles nearly a fifth of global supply. Brent crude has risen over 22 per cent since hostilities began, trading around $93 a barrel on Monday.
For India, higher oil prices increase macroeconomic pressures, widening the fiscal deficit, stoking inflation and weighing on growth given the country’s heavy reliance on energy imports.
Outflows have been broad across emerging markets, though India’s selling stands out, apart from South Korea, which has recorded year-to-date FPI outflows of $34 billion.
“In India, valuations are much higher than in other emerging markets. That premium was justified by stronger earnings growth,” said U R Bhat, co-founder of Alphaniti Fintech, adding with oil prices rising after the war and India’s dependence on imports, the impact is broad-based. “The earnings outlook has become much slimmer. Once earnings growth is softer than what investors expect from India, the valuation premium is no longer justified.”
The conflict shows little sign of resolution. As of Monday, Iran signalled reluctance to join a second round of talks after the US maintained its blockade of the Strait of Hormuz and seized an Iranian vessel.
Indian markets have reflected the pressure. The Sensex has declined 7.9 per cent so far this year and the Nifty 6.8 per cent. The market capitalisation of BSE-listed firms has fallen by ₹10.1 trillion to ₹465.7 trillion. The rupee has weakened 3.5 per cent in 2026, including a 2.3 per cent drop since the conflict began, to 93.1 per dollar, eroding returns for overseas investors.
“We have seen significant rupee depreciation. While valuations can adjust, as seen last month, the currency’s depreciation has wiped out returns for FPIs,” noted Pramod Gubbi, co-founder of Marcellus Investment Managers, adding structural stability in the rupee is critical. “If the war ends and oil falls below $80, we could see a rebound in the currency and a reversal in flows.”
A sustained return of FPI flows will depend on a resolution to the Iran conflict and stabilisation in energy prices.
“FPIs are unlikely to return unless there is equilibrium between valuation premium and earnings growth. Earnings growth will depend on the lifting of the Strait of Hormuz blockade and oil prices returning to pre-war levels,” added Bhat.
