The FII outflows continue to be one lingering concern for the Indian markets. The FIIs continue to be net sellers. The latest FII-DII data indicates that foreign institutional investors have net sold equities worth nearly Rs 40,000 crore in March so far. This is nearly as much as they net sold in the entire January. Market observers believe that FIIs are using every rally to exit India and that’s perhaps got very little to do it India
In terms of magnitude of the FII outflows, March is on track to record the largest monthly outflows since last August. FIIs had net sold equities worth Rs 46,902 crore. For entire 2025, the net FII outflow was well over Rs 1.6 lakh crore. Even 2026 has begun on a weak note. FIIs were net sellers in both January and February.
Why are FIIs selling Indian on every rally?
Though the quantum of FII outflows reduced significantly in February and the first few days of March. However, what’s being noticed is every rally is being used to sell Indian equities. The question then is, has India become a ‘sell-on-rally’ market?
Market veteran Ajay Bagga pointed out that, “Foreign investors are not exiting India because of valuation alone. The persistent outflows are being driven by a confluence of factors—elevated crude prices hitting our current account, a strong dollar environment pulling capital back to US treasuries, and the twin risks of geopolitical escalation and trade war investigations. For FIIs, India has become a ‘sell on every rally’ market, not due to structural weakness, but because global risk-off flows are dictating allocation. Until energy security stabilises and tariff uncertainty clears, India will remain vulnerable to episodic FII exits.”
Global headwinds a big trigger
Most leading market observers pointed out that the global risk-off sentiment is playing against India. The conflict in the Middle East continues to escalate with fresh reports of attacks on cargo containers around the Strait of Hormuz. This strait is one of the key chokepoints in the global trading map and continued supply disruption there is not just leading to commodity prices hitting the roof but also a flight-to-cash approach. As a result, Crude prices have surged yet again despite record supply by IEA and the dollar too is quite strong in early trade. As a result, this is leading to significant outflows.
Bagga also pointed out that “hedge fund losses in commodities are being funded by selling for liquidity. Indian markets are seeing outflows for margin calls and liquidity needs as well.”
Dollar dilemma and the rupee’s continued weakness
The other big factor that’s being seen as a key trigger is the dollar’s move internationally and the rupee’s prolonged weakness. In fact, the currency depreciated 31 paise to 92.32 against the US dollar in early Thursday trade on the back of rising global crude oil prices and a stronger greenback.
Ambareesh Baliga, an independent market analyst, corroborated the concerns and added that “Whenever there are geo-political issues – the currency has continuously been weak – FIIs generally tend to move out. Our markets have been among the few emerging markets which have provided huge liquidity to reduce the impact cost – thus making it easier for FIIs to move out.”
“However, in the longer run, with our economy expected to be among the few bright spots on the global horizon, FIIs won’t have any option but to return. This could happen once the geo-political situation clears up and the currency stabilises.”
Conclusion
Most market observers concurred with the view that the current rate of outflows is more a function of global headwinds and push for liquidity. They are hopeful that India’s fundamental strength will help woo back foreign investors once the world gets past this current crisis across West Asia.
