Foreign Investors Pull Record $12 Billion in March
International investors are fleeing Indian markets at an unprecedented rate, withdrawing a record $12.1 billion from equities in March as the war in Iran triggers severe economic repercussions. With just two trading days left in the month, the outflow has already surpassed the previous record of 940 billion rupees ($11.3 billion) set in October 2024. The capital flight has hammered Indian assets, with the benchmark Nifty 50 index falling 7.4% over the past month and the rupee weakening to new lows against the U.S. dollar despite central bank intervention.
Market analysts directly link the selloff to the escalating conflict. The disruption to oil and gas supplies through the Strait of Hormuz—a route for about 50% of India's crude needs—has created significant uncertainty. "Large FII outflows in March 2026 are linked to the conflict in the Middle East," stated Peeyush Mittal, a portfolio manager at Matthews Asia. "The longer the conflict persists, the deeper the negative impact on India's economic growth."
Growth Forecasts Cut as Energy Costs Mount
India's government officially acknowledged the severe economic threat on March 30, warning that its growth forecast of up to 7.4% for the fiscal year ending March 2027 faces "considerable downside" risk. The country's chief economic advisor projected that the nation's trade and current account deficits will widen significantly. The vulnerability is stark, as India's net oil imports amount to 3.5% of its GDP.
Private-sector forecasts echo these concerns. Renaissance Investment Managers calculates that if crude oil prices settle between $85 and $95 per barrel, India's economic growth could be trimmed to 6.5% from 7.2%. In a more severe assessment, Moody's Analytics warned that India's economic output could fall by nearly 4% from its baseline trajectory if the conflict persists, making it one of the worst-hit economies in the Asia-Pacific region.
Private-Sector Activity Hits 29-Month Low
The economic strain is already visible in high-frequency data. The HSBC flash Purchasing Managers' Index (PMI) for March showed that India's private-sector activity slowed to its weakest level since October 2022. Companies surveyed for the index cited unstable market conditions and intensifying inflationary pressures, with cost inflation now approaching a four-year high. This has dampened domestic demand, a key engine of India's economy.
In response, the Indian government cut the special excise duty on petrol and diesel by 10 rupees per liter to shield consumers from rising prices. However, this measure is expected to deliver a "huge hit" to government tax revenues, according to India’s minister for petroleum. Despite lower valuations, analysts believe the combination of geopolitical risk and a weaker rupee will continue to deter foreign investment. According to Nomura, 68% of Asia ex-Japan funds are now underweight on India, describing it as "one of the biggest" underweights in the region.
