Foreign institutional investors (FIIs) have continued to pull money out of Indian equities in the first week of March, while domestic institutional investors (DIIs) stepped in with strong buying, helping absorb the selling pressure and stabilise the market.

Data shows FIIs have been net sellers of equities worth about ₹21,831 crore so far in March. On March 6 alone, foreign investors sold shares worth ₹6,030 crore, extending the selling streak seen in previous sessions. Earlier in the week, FIIs offloaded equities worth ₹8,752 crore on March 4 and ₹3,753 crore on March 5, signalling persistent caution among global investors amid the U.S.-Iran conflict in West Asia, which has raised concerns about potential crude oil supply disruptions.

In contrast, DIIs remained aggressive buyers. Domestic institutions purchased equities worth ₹32,787 crore month-to-date, providing a strong counterbalance to foreign outflows. On March 6, DIIs bought shares worth nearly ₹6,972 crore, while purchases on March 4 crossed ₹12,068 crore, reflecting steady domestic participation.

Overall, FIIs have offloaded equities worth ₹69,907 crore in the cash market so far this year, while DIIs have invested ₹1,40,430 crore during the same period.

Are FIIs turning cautious on India?

Market experts said the divergence between foreign and domestic flows reflects shifting global risk appetite amid rising geopolitical uncertainty and higher global interest rates.

Ponmudi R, CEO of Enrich Money, said persistent FII outflows mirror cautious global sentiment and evolving capital allocation trends. However, strong domestic institutional inflows have helped absorb the selling pressure and supported market stability.

“The persistent outflows reflect cautious global sentiment and shifting international capital flows. In contrast, DIIs provided strong support to the market, purchasing equities worth ₹32,787 crore during the same period. These robust domestic inflows helped absorb foreign selling pressure and played a crucial role in stabilising market sentiment amid prevailing external headwinds,” he said.

Will rising crude prices pressure Indian markets?

According to Vinod Nair, Head of Research at Geojit Investments Limited, global markets have reacted sharply to escalating geopolitical tensions in the Middle East, triggering a correction in domestic equities. Crude oil prices have surged above $85 a barrel, while the Indian rupee has weakened, reflecting concerns over potential disruptions to global energy supply.

Nair added that a sustained rise in crude prices could weigh on India’s inflation outlook and widen the country’s fiscal and current account deficits, potentially influencing the policy stance of the Reserve Bank of India. Higher U.S. bond yields and a stronger dollar have also prompted FIIs to adopt a risk-off approach toward emerging markets, including India.

The recent market correction has been broad-based, with sectors such as real estate, banking and automobiles underperforming, while defence stocks have shown relative resilience amid rising geopolitical tensions. The BSE Sensex and NSE Nifty witnessed a sharp correction last week, ending lower in three out of four sessions and losing nearly 3% each, eroding about ₹14 lakh crore of investors’ wealth.

Will oil and geopolitics dictate market direction?

Going forward, investors will closely track crude oil prices, geopolitical developments and institutional flows. Analysts say any reassurance regarding the stability of supply routes such as the Strait of Hormuz could help ease investor concerns and stabilise market sentiment in the coming weeks.

Ponmudi said the week ahead is likely to remain volatile, with market sentiment largely shaped by ongoing geopolitical tensions in the Middle East. Investors will closely monitor global developments, particularly movements in crude oil prices, as energy markets continue to play a key role in shaping overall risk appetite.

He added that escalating tensions in the region have begun to disrupt normal trade flows through the Strait of Hormuz, raising concerns about potential global supply chain disruptions. As a result, global investors are becoming increasingly cautious about the possible impact on economic growth while also grappling with the risk of commodity-driven inflation—posing a complex challenge for policymakers.

In addition, foreign institutional investor flows and currency movements will remain key indicators to watch, as they provide important signals on global capital allocation trends and investor confidence in emerging markets such as India.

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