Four months in, foreign outflows from Indian shares top last year's peak

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 an Iran war-driven spike in oil prices soured sentiment on Asia’s third-largest economy and one of the biggest importers of crude oil.

The bulk of the selling - $19 billion - has come since the Iran war started, data from the National Securities Depository showed. Last year, the outflows stood at $18.9 billion.

India, which imports 90% of its energy needs and relies heavily on supplies from the Middle East, is among the most vulnerable to the energy shock, analysts have said.

“There is a greater propensity for markets like India, with a high reliance on oil and food prices, to be impacted by the Middle East conflict,” said Lilian Chovin, head of asset allocation at UK-based private bank and wealth management firm Coutts.

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Indian equity benchmarks Nifty 50 and Sensex have fallen 8.2% and 9.8%, respectively, so far this year, underperforming their Asian and emerging-market peers while the rupee has fallen to record lows against the U.S. dollar.

Financial shares have borne the brunt of the selling, with outflows of 799.81 billion rupees ($8.44 billion), followed by information technology stocks that have seen withdrawals of about 220 billion rupees.

Investor sentiment toward software firms has weakened due to concerns over potential AI-led disruption, which has contributed to the broader market derating, Chovin said.

Domestic institutional buying has helped steady markets, with record local purchases of $15.4 billion in March offsetting the highest-ever monthly foreign outflows of $12.7 billion.

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.