Although Foreign institutional investors (FII) turned net buyers in February, scooping up Indian stocks worth Rs 22,615 crore during the month, Friday’s sharp sell-off cast doubt on the sustainability of this trend reversal. With the Iran-Israel conflict escalating this weekend, risk appetite could take a backseat, prompting foreign investors to take a wait-and-see approach before committing new flows to emerging markets.
The conflict in the Middle East has triggered a situation of risk aversion in financial markets. It remains to be seen how the conflict will evolve and impact the oil and currency markets, said Dr VK Vijayakumar, chief investment strategist at Geojit Investments, commenting on the crisis. According to him, FIIs will probably wait to see how things develop before making new commitments in emerging markets.
Echoing a similar sentiment, Nachiketa Sawrikar, fund manager at Artha Bharat Global Multiplier Fund, said he expects broad sales of risky assets in developed and emerging markets amid a US-Israeli attack on Iran.
He said trading activity appears increasingly biased toward U.S. securities, with a parallel shift in flows toward bullion, signaling the possibility of a withdrawal of capital from emerging markets. “We expect the ongoing rise in US Treasuries, oil, gold and silver to continue,” the expert added.
Sawrikar also sees a deeper impact of the war on India, accelerating the flight of foreign capital due to its dependence on imported crude oil. “Rising crude oil prices could widen the current account deficit, stoking domestic inflation and putting pressure on the rupee,” he warned.
Vijayakumar said FII purchases almost every day in February indicated a clear shift in their investment strategy towards India. “There are variations in sectoral investments in February. FPIs sold heavily in IT stocks due to the man-made shock and continued weakness in this segment. But they were buyers of financial services and capital goods,” the Geojit analyst said.
While FPIs invested Rs 19,782 crore in the secondary markets, around Rs 2,832 crore was pumped into the primary market.
On Friday, FII sold shares worth Rs 7,536.36 crore, triggering a massive sell-off. Benchmark indices Nifty and BSE Sensex ended sharply lower on Friday amid widespread selling pressure. Automobiles, financial services and FMCG lagged, while the IT sector saw selective buying. In a volatile session, the broader Nifty edged down 317.90 points, or 1.25 per cent, to close at 25,178.65, while the 30-share Sensex plunged 961.42 points, or 1.17 per cent, to settle at 81,287.19.
REIT Trends
February saw inflows after a strong exodus in January of Rs 35,962 crore. FIIs are still net sellers in 2026 at Rs 13,347 crore.
In 2025, FII buying trends remained uneven, but the overall trend was bearish. They withdrew Rs 1,66,286 crore from Indian markets as delayed trade deals and premium valuations weighed on sentiments.
FIIs were net sellers in December, selling off domestic stocks worth Rs 22,611 crore.
The April-June 2025 period saw inflows totaling Rs 38,673 crore. Meanwhile, massive sales to the tune of Rs 1,16,574 crore took place during the January-March quarter.
