Foreign investors are poised to withdraw a record $12 billion from Indian equities this March, driven by disruptions in oil and gas supplies caused by the ongoing Iran conflict, which is putting pressure on the economy and raising concerns about slower growth.
With only two trading sessions remaining in the month, foreign portfolio investors (FPIs) have already pulled 1.12 trillion rupees ($12.1 billion), potentially marking the largest monthly outflow on record and surpassing the previous peak of 940 billion rupees in October 2024, according to data from NSDL.
Peeyush Mittal, portfolio manager at Matthews Asia, said “significant FII outflows in March 2026 are linked to the conflict in the Middle East,” adding that prolonged tensions could further weigh on India’s economic growth.
HSBC’s flash Purchasing Managers’ Index for March revealed that private-sector activity in India slowed to its weakest level since October 2022, as weaker domestic demand offset gains from rising international orders.
Firms surveyed cited the Middle East conflict, volatile market conditions, and rising inflationary pressures as key drags on growth, with cost inflation nearing a four-year high.
As the world’s third-largest oil importer and second-largest consumer of liquefied petroleum gas, India faces rising energy costs and panic-buying, exacerbated by the closure of the Strait of Hormuz.
Pankaj Murarka, CEO and CIO of Renaissance Investment Managers, told CNBC that if oil prices stabilize at $85–$95 per barrel after the conflict, incremental capital outflows of $40–50 billion could occur, exceeding 1% of India’s GDP, potentially reducing growth from 7.2% to 6.5%.
Hanna Luchnikava-Schorsch, head of Asia-Pacific Economics at S&P Global Market Intelligence, said that India is “particularly vulnerable to higher oil prices,” noting that sustained elevated prices could continue to pressure the rupee. She added that higher energy costs, coupled with slowing remittances from the Middle East, may expand India’s current account and fiscal deficits, and that capital outflows could intensify amid global “risk-off” sentiment.
Finance Minister Nirmala Sitharaman announced a 10-rupee-per-litre reduction in special excise duties on petrol and diesel to ease domestic fuel prices. Meanwhile, Petroleum and Natural Gas Minister Hardeep Singh Puri said the government will bear a “huge hit” on tax revenues to offset losses faced by oil companies.
Over the past month, the benchmark Nifty 50 index has dropped approximately 7.4%, while the rupee has weakened sharply against the U.S. dollar, reaching new lows. Despite interventions by the Reserve Bank of India, analysts predict the currency will remain under pressure as global energy market disruptions continue.
Saion Mukherjee, head of equity research at Nomura, explained that India’s equity market is closely tied to oil prices, which are influenced by Middle East geopolitics. He noted that India’s one-year forward earnings multiple of 17.5 times compares favorably with the 16.9 times seen at the start of the Russia-Ukraine conflict in early 2022.
However, analysts caution that attractive valuations alone are unlikely to draw foreign investors back soon, as the ongoing Middle East conflict and a weaker rupee continue to present significant obstacles.