Foreign investors have pulled more than $20 billion out of Indian equities in the first four months of 2026, surpassing last year’s record annual exit, as a surge in crude oil prices triggered by the Iran war dented sentiment towards Asia’s third-largest economy and a major oil importer.
The exodus has been exacerbated by a hawkish stance from the US Federal Reserve, which has held rates making US Treasury yields more attractive, alongside a strengthening US dollar. This has prompted foreign portfolio investors (FPIs) to shift funds out of emerging markets like India to safeguard returns.
Additionally, downward revisions to India’s FY27 GDP growth forecasts by global institutions such as the World Bank, Goldman Sachs and Moody’s have led to a reassessment of earnings expectations, further weighing on investor confidence.
Data from the National Securities Depository Limited (NSDL) shows that the bulk of the outflows has occurred since the onset of the Iran conflict. In comparison, total outflows stood at $18.9 billion for the whole of 2025. In rupee terms, FPIs have withdrawn ₹1.89 lakh crore between January 1 and April 29, 2026, versus ₹1.66 lakh crore in the previous year.
The Union finance ministry, in its April 2026 monthly economic review released on Wednesday, attributed the outflows primarily to the equity segment amid heightened global risk aversion linked to the West Asia conflict.
“The interaction between portfolio outflows and exchange rate movements has exhibited self-reinforcing dynamics: rupee depreciation reduces dollar-denominated returns for foreign investors, prompting further outflows, which in turn exacerbate currency pressures. As India’s integration with global financial markets deepens, such episodes underscore the heightened sensitivity of capital flows to shifts in global risk sentiment,” the report said.
The Reserve Bank of India, in its April 2026 bulletin, had said that the outflows from the equity segment are amid cautious investor sentiment driven by global trade tensions, uncertainty around the India-US trade deal, and the outbreak of the West Asia conflict.
“Foreign investor sentiment turned positive following the India-EU free trade agreement and the announcement of the interim India-US trade deal framework. However, global risk sentiments deteriorated following the conflict in West Asia, leading to significant net outflows,” the bulletin had said.
Indian equity benchmarks Nifty 50 and Sensex have fallen 8.2 per cent and 9.8 per cent, respectively, so far this year, underperforming their Asian and emerging-market peers, while the rupee has fallen to record lows against the US Dollar.
Analysts say that although domestic liquidity continues to provide some support, a sustained market recovery would likely hinge on the return of foreign capital flows.
“There is a greater propensity for markets like India, with a high reliance on oil and food prices, to be impacted by West Asia conflict,” said Lilian Chovin, head of asset allocation at UK-based private bank and wealth management firm Coutts, according to a Reuters report.
While the domestic liquidity backstop remains intact, any durable market rally would need foreign money to return, CLSA analysts led by Vikash Kumar Jain said in a note on Wednesday.