Indian equity markets remained under intense pressure in March as sustained foreign institutional investor (FII) selling, rising crude oil prices and escalating geopolitical tensions weighed heavily on investor sentiment. The equity benchmarks – Sensex and Nifty50 - have fallen around 8% month-to-date, while investors have lost ₹33.85 lakh crore in wealth as the total market capitalisation of companies listed on the Bombay Stock Exchange declined to around ₹429.40 lakh crore.

Foreign investors have remained consistent sellers throughout the month. Data shows FIIs were net sellers on all nine trading sessions in March, with cumulative selling of ₹56,883 crore through exchanges so far. On March 13 alone, FIIs sold equities worth ₹10,716.64 crore, marking the sharpest daily outflow during the period. The heavy selling has been a key factor behind the continued weakness in domestic equities.

In contrast, domestic institutional investors (DIIs) have been actively absorbing the supply. DIIs have purchased ₹70,526.70 crore worth of equities month-to-date, emerging as net buyers in each sessions, providing some cushion to the markets and preventing sharper declines despite the persistent foreign outflows.

Crude surge drive foreign outflows

According to V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, sustained foreign portfolio investor selling has continued unabated in March.

He attributed the outflows to several global and domestic factors, including weakness in global equity markets following the conflict in West Asia, the steady depreciation of the rupee and concerns over the impact of elevated crude oil prices on India’s growth and corporate earnings outlook. Additionally, the relatively weaker returns delivered by Indian equities over the past eighteen months compared with other developed and emerging markets have reduced the attractiveness of India for foreign investors.

“Foreign investors now see markets such as South Korea, Taiwan and China as relatively cheaper compared to India, even after the recent correction. Corporate earnings prospects in these markets also appear better,” Vijayakumar noted, adding that further foreign selling could continue in the near term unless clear signs of earnings recovery emerge in India.

On the positive side, huge selling by FPIs in financials has made their valuations attractive and investable for domestic investors, he added.

Risk-off sentiment intensifies market decline

Ajit Mishra, Senior Vice President – Research at Religare Broking, said foreign institutional investor activity significantly intensified the market decline during the week. FIIs remained net sellers across segments, with net equity outflows exceeding ₹35,052 crore during the week, reflecting a cautious stance among global investors amid rising geopolitical risks.

Despite the continued selling pressure, the heavy FII outflows in financial stocks have created valuation opportunities for domestic investors. According to Vijayakumar, the sharp correction in financials has made several stocks in the sector attractive from a long-term investment perspective for domestic participants.

Defensive strategy advised in volatile markets

Looking ahead, Mishra believes the near-term direction of the market will remain closely linked to developments in global energy markets and geopolitical tensions in West Asia. With crude prices remaining elevated and foreign flows still negative, market volatility is expected to persist.

“Given the heightened geopolitical risks, the sustained surge in crude oil prices and continued foreign fund outflows, investors should adopt a cautious and disciplined approach in the near term. Market direction is likely to remain closely linked to developments in global energy markets and geopolitical tensions in West Asia,” he said.

Mishra advised investors to maintain a cautious and disciplined approach in the current environment. Market participants may consider a defensive stance with selective exposure to relatively resilient sectors such as pharma and energy, while avoiding aggressive leveraged positions. Traders should prioritise risk management, adhere to strict stop-loss levels and avoid averaging loss-making positions until clearer signs of stability emerge in the market.