Foreign investors sell $12 billion stocks
People line up to fill up at a gas station in Guwahati, India, on March 26, 2026.
David Talukdar | Anatolia | Getty Images
Foreign investors are on track to withdraw a record $12 billion from Indian stocks this March as the Iran war disrupts oil and gas supplies, squeezes the economy and raises fears of a growth slowdown.
With only two trading days left until the end of the month, foreign portfolio investors we have already mined 1.12 trillion rupees ($12.1 billion) – likely the worst monthly sell-off, surpassing the previous record of 940 billion rupees in October 2024, according to data from escrow firm NSDL.
“Massive FII outflows in March 2026 are linked to conflicts in the Middle East,” said Peeyush Mittal, portfolio manager at Matthews Asia – referring to FII foreign institutional investors. “The longer the conflict continues, the deeper the negative impact on India’s economic growth,” he added in an email to CNBC.
growth concerns
HSBCThe flash Purchasing Managers Index released on Tuesday showed India’s private sector activity fell in March to its weakest level since October 2022; as weak domestic demand outweighed the strongest increase in international orders.
Companies surveyed cited conflict in the Middle East, unstable market conditions and intensifying inflationary pressures as factors weighing on growth. Cost inflation is currently near its highest level in four years.
India, the world’s third-largest oil importer and second-largest consumer of liquefied petroleum gas, is grappling with rising energy costs and panic buying amid tight supply. Closing the Strait of Hormuz.
If oil settles at $85-95 per barrel after the war, it could lead to incremental outflows of $40 billion to $50 billion (more than 1% of India’s GDP), according to Pankaj Murarka, CEO and Chief Investment Officer of Renaissance Investment Managers, speaking to CNBC’s “Inside India” on Friday.
This could reduce India’s economic growth from 7.2% to 6.5%, he said.
India “one of the most vulnerable countries” [countries] That could lead to higher oil prices because net oil imports account for 3.5% of GDP, said Hanna Luchnikava-Schorsch, head of Asia-Pacific Economics at S&P Global Market Intelligence. “Persistently high oil prices” could keep the rupee under pressure, he added in an email to CNBC.
Indian finance minister Nirmal Sitharaman Special consumption tax cut on gasoline and diesel 10 rupees per liter for domestic consumption, a post published on X on Friday said.
India’s Petroleum and Natural Gas Minister Hardeep Singh Puri said in a post on X on Friday that the government will take these measures. “Big blow” to tax revenues To finance the losses faced by oil companies.
Luchnikava-Schorsch stated that the increase in India’s energy bill and the slowdown in remittances from the Middle East are expected to increase India’s current account deficit and fiscal deficit, and warned that “capital outflows are likely to intensify due to the global ‘risk-off’ sentiment and investors’ concerns about India’s economic growth.”
Weak rupee welcomes ‘risk aversion’ sentiment
Last month, comparison Stylish 50 fell about 7.4 percent Rupee weakened sharply It is touching new lows against the dollar. Despite regular interventions by the Reserve Bank of India, experts said the currency is likely to remain under pressure. Energy markets continue to deteriorate.
“The performance of the Indian equity market depends on oil prices, which are tied to Middle East geopolitics,” Saion Mukherjee, head of equity research at Nomura, said in an email to CNBC. He noted that 17.5 times one-year forward earnings for India compares well with the 16.9 times recorded at the beginning of the Russia-Ukraine conflict in early 2022.
But analysts warn that attractive valuations alone may not attract foreign investors any time soon. The deepening impact of the conflict in the Middle East on the economy and the weakening of the rupee continue to be significant negatives.
“We do not think the decline in valuations is compelling enough to attract foreign investors in the near term,” Daniel Grosvenor, director of equity strategy at Oxford Economics, said in an email to CNBC, citing geopolitical uncertainty and rising global risk premiums.
Allocation data for Asia and APAC funds (excluding Japan) compiled by Nomura in February showed more funds were underweight in India – 68% compared to 63% in the previous month.
The global brokerage identified India as one of the “top” underweights in a March 23 report.
