FIIs sell Indian equities worth Rs 1.6 lakh cr since outbreak of Iran-US war. Where are they going and when will they come back?

Foreign investors have been incessantly selling Indian equities since the beginning of March, following the outbreak of the raging war between Iran and US. Analysts have suggested key factors that led to the sustained FII outflows, where it was heading towards, and what is needed to bring them back to Dalal Street.

Foreign investors net sold Indian equities worth Rs 1.6 lakh crore for 25 consecutive sessions between March 2 to April 9. In fact, the selling streak overall continued for 27 consecutive sessions, starting from the end of February. The sustained selloff was one of the major factors behind the massive bear attack on Dalal Street that wiped off massive sums of investor wealth in March, as Sensex and Nifty crashed over 11% during the month while oil prices soared following the effective closure of the Strait of Hormuz.

April began with new hopes as ceasefire talks uplifted sentiment on Dalal Street. Sensex and Nifty have gained over 6% each over the last week. Yet, foreign investors were cautious. In the first two sessions of April, they net sold Indian shares worth more than Rs 18,260 crore. Last week, they sold Indian equities worth over Rs 21,380 crore between Monday and Thursday.

However, foreign investors remained net buyers of Indian equities on Friday, breaking a 27-session-long selling streak and bringing much-needed relief. FII net bought Indian shares worth Rs 672 crore on April 10, according to data on NSE. Only time will now tell whether this reflects a long-term change in FII’s behavior or a brief U-turn.

Meanwhile, analysts have advised caution. “After the record Rs 1,22,182 crore selling in March, FPIs continued selling in April, too. Up to 11th April, total FPI selling through the exchanges stood at Rs 48,905 crores, taking the total FPI selling for 2026, till now, to Rs 1,90,046 crore,” said VK Vijayakumar, Chief Investment Strategist at Geojit Investments.

South Korea and Taiwan looking more attractive than Indian markets

The energy crisis triggered by the conflict in West Asia, the potential impact of the crisis on Indian economy and sustained depreciation of the rupee kept the FPIs on sell mode, the analysts noted. “Other markets like South Korea and Taiwan are considered more attractive from the FPI perspective since these markets are expected to deliver much superior earnings growth when compared to the modest earnings growth expected in India in FY27,” he added.The sharp correction in the market after the war began has made the valuations fair, but not compelling buys, yet, according to Vijayakumar.

“The surge in equity mutual flows to Rs 40450 crores and monthly SIP inflows to Rs 32087 crores in March bode well for the market. With such strong mutual fund flows into the market, FPI selling will not impact the market significantly,” he however noted.

What will turn foreign investors buyers again?

However, FPIs turning buyers in the market will depend on the situation in West Asia and crude prices, according to him. “If there is de-escalation in the conflict and crude declines significantly, India’s macros will not be impacted materially. If the conflict prolongs India’s macros will be impacted. It would be unrealistic to expect FPIs to turn buyers in such a scenario,” he concluded.

JM Financial noted that foreign investors were net sellers of Indian equities worth $13.6 billion in March. Over the last 12 months, Indian primary markets saw FII net inflows of Rs 70,800 crore whereas secondary markets logged FII net outflows of Rs 2,66,400 crore, it further said, adding that BFSI, auto, telecom, FMCG, realty, pharma and oil & gas saw the biggest FII outflows, while capital goods was the only sector that saw inflows in March.

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