People stand in line to refuel at a gas station in Guwahati, India, on March 26, 2026.
David Talukdar Anadolu | getty images
Foreign investors are on track to pull a record $12 billion from Indian equities this March as the Iran war disrupts oil and gas supplies, weighing on the economy and raising fears of a growth slowdown.
Only two trading days left in the month, foreign portfolio investors Rs 1.12 trillion have already been withdrawn ($12.1 billion) – This is possibly the worst monthly selloff, surpassing the previous record of Rs 940 billion in October 2024, according to data from depository firm NSDL.
“Large FII outflows in March 2026 are linked to conflict in the Middle East,” said Piyush Mittal, portfolio manager at Matthews Asia. FII refers to foreign institutional investors. “The longer the conflict continues, the deeper the negative impact on India’s economic growth will be,” he said in an email to CNBC.
concern for development
HSBCThe flash Purchasing Managers’ Index released on Tuesday showed India’s private sector activity slowed in March to its weakest level since October 2022, as soft domestic demand outweighed the strongest growth in international orders.
Companies surveyed cited the Middle East conflict, volatile market conditions and rising inflationary pressures as factors impacting growth. Cost inflation is now close to a four-year high.
As the world’s third-largest oil importer and second-largest liquefied petroleum gas consumer, India is struggling amid rising energy costs and supply shortages. closing the strait of hormuz.
If oil stabilizes at $85-$95 a barrel after the war, it could lead to $40 billion to $50 billion of incremental outflows — more than 1% of India’s GDP — according to Pankaj Murarka, CEO and chief investment officer at Renaissance Investment Managers, speaking to CNBC’s “Inside India” on Friday.
He said, this may reduce India’s economic growth from 7.2% to 6.5%.
Hannah Luchnikava-Schorsch, head of Asia-Pacific economics at S&P Global Market Intelligence, said India is “one of the most sensitive (countries) to higher oil prices” because its net oil imports are 3.5% of GDP. In an email to CNBC, he said “continued high oil prices” could keep pressure on the rupee.
India’s Finance Minister Nirmal Sitharaman said the country Has cut special excise duty on petrol and diesel An increase of Rs 10 per liter for domestic consumption was announced in a post on X on Friday.
India’s Petroleum and Natural Gas Minister Hardeep Singh Puri said in a post on X on Friday that the government will A “huge hit” to taxation revenues. To meet the losses incurred by the oil companies.
India’s current account deficit and fiscal deficit are projected to widen due to a rise in India’s energy bills and a slowdown in remittances from the Middle East, Luchnikwa-Schorsh said, warning that “capital outflows are likely to accelerate due to global risk-off sentiment and investor concerns over India’s economic growth.”
Weak rupee caters to ‘risk-off’ sentiment
In the last month, the benchmark nifty 50 fell by about 7.4%, while Rupee has weakened rapidly Touching a new low against the dollar. Despite regular interventions by the Reserve Bank of India, experts said the currency is likely to remain under pressure Energy markets remained disrupted.
“Indian equity market performance is linked to oil prices, which in turn depends on geopolitics in the Middle East,” Sayan Mukherjee, head of equity research at Nomura, said in an email to CNBC. He said India’s one-year forward earnings are at 17.5 times, which closely matches the 16.9 times recorded at the start of the Russia-Ukraine conflict in early 2022.
Still, analysts caution that attractive valuations alone may not lure foreign investors back any time soon. The deepening impact of the Middle East conflict on the economy and the weak rupee remain significant headwinds.
“We do not think the decline in valuations is 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 elevated global risk premiums.
Allocation data for Asia and APAC funds (except Japan) compiled by Nomura in February showed that more funds have become underweight on India – 68% compared to 63% in the previous month.
The global brokerage described India as one of the “biggest” underweight stocks in a March 23 report.
