Foreign Portfolio Investors (FPIs) recorded a historic monthly sell-off in March, withdrawing about Rs 1.18 lakh crore ($12.7 billion) from Indian stock markets amid rising global uncertainty and heightened conflict in West Asia.With investors more risk-averse toward emerging markets like India, the large-scale outflow increased stock market volatility, weakened investor sentiment and put pressure on the rupee, which depreciated sharply, breaching the 95 mark intra day and finally closing at 94.83 against the US dollar on Monday.FPIs had earlier turned positive after three months in February, but with the sharp outflows in March since the war started, they have dumped Rs 1.31 lakh crore ($14.2 billion) of shares so far in 2026. The Nifty 50 and the Sensex have fallen around 14-16% over that time. However, domestic institutional investors, led by LIC and mutual funds, continued to support the market somewhat, purchasing Rs 1.3 lakh crore of Indian equities during the month.The intense FPI sell-off led to benchmark index Sensex plunging by another 2.22% to 71,947.55 and the NSE Nifty Index by 2.14 per cent to 22,331.40 on Monday. With this, the stock market has fallen 12.52% since the West Asia war started in late February.Explained | RBI’s new forex cap to stem rupee slide: Why are banks worried?The previous low was recorded on February 14 in 2024, when it closed at 71,822.The war has led to crude prices staying elevated above $100 per barrel for nearly a month now, denting earnings growth forecasts and posing a risk to macroeconomic growth. Due to this, the rupee has also sharply depreciated against the dollar, breaking multiple crucial levels as high crude prices balloon India’s fiscal deficit. The average price of India’s crude oil basket has skyrocketed to $112/bbl in March from $69/bbl in February, according to data from the Ministry of Petroleum and Natural Gas’s Petroleum Planning & Analysis Cell.These factors have dealt a double whammy to hopes of FPIs returning to the Indian markets. For the past year or so, expensive valuations have been a big deterrent for FPIs looking at the Indian equity market. However, while the valuation of the Indian market returned to historical levels of around 18-19 times its price-to-earnings ratio (having risen to 21-22 at its peak), the war in West Asia appears to have pushed foreign players to other asset classes such as gold, silver and the dollar.Story continues below this adIndia also seemingly missed the AI boat, with AI-driven rallies seen in markets such as South Korea, Japan and the US. The South Korean market has especially rallied and is up 25% so far in 2026 despite some correction seen since the start of the war.“It is important to understand that FPIs were sellers in other emerging markets like Taiwan and South Korea. There is a risk-off trend in equity markets, globally after the war broke out in West Asia,” said an analyst with a research house.“The poor returns from India vis a vis other markets — both developed and emerging — during the last 18 months is the principal reason for FPI’s indifference towards India. If their sustained selling strategy is to change, there should be an end to the hostilities in West Asia and decline in crude prices,” the analyst said.