Nifty Underperforms Global Peers with 2,800-Point Quarterly Slide as West Asia War Triggers Record FII Exodus
In the last three months, the Nifty 50 has shifted from record highs to a deep correction, losing over 13% from its peak. Following the outbreak of war on February 28, the index has faced five straight weeks of declines, driven by a record ₹1.14 lakh crore FII outflow in March. While DIIs have provided a buffer, the index remains under heavy pressure due to a 59% surge in Brent.
- Republic Business
- 3 min read
The Indian equity market is navigating its most turbulent quarterly stretch in recent history. A confluence of record-breaking foreign outflows and a global energy shock triggered by the West Asia conflict has wiped out approximately ₹40.2 lakh crore in investor wealth over the last 90 days. While global benchmarks like the S&P 500 and the FTSE 100 have maintained a degree of stability, the Nifty 50 has sharply decoupled. It has plunged nearly 13.4% from its January peak of 26,373.85 to test the critical 22,450 support zone this morning.
Quarterly Decoupling
The first three months of 2026 have been a tale of reversal for the Indian benchmark. After starting January with a steady 1.12% gain, the index hit a wall as the West Asia conflict started on February 28. In contrast to the 2.3% rise seen in the MSCI World Index during this period, the Nifty 50 has shed over 2,800 points in total. This divergence is primarily attributed to India's high oil-beta, a metric that measures the market's sensitivity to energy prices. With Brent crude skyrocketing 59.4% in March alone to reach $115.53, the domestic inflationary outlook has been completely recalibrated. This has forced a massive valuation derating across high-growth sectors.
FII Dumping
The four weeks following the outbreak of war have seen the most aggressive "risk-off" sentiment since the 2020 pandemic. Foreign Institutional Investors have been the primary reason for this decline. They have offloaded a record-breaking ₹1.14 lakh crore, which is approximately $12.3 billion. in Indian equities during March 2026. This brings the total year-to-date FII outflow to ₹1.27 lakh crore. Thus, surpassing the previous monthly record of ₹94,017 crore set in late 2024. The relentless selling has seen the rupee breach the 94.80 mark against the U.S. dollar, which has further incentivized foreign funds to exit Indian holdings to protect their dollar-denominated returns.
Weekly Breakdown
From a technical perspective, the Nifty 50 has recorded its most damaging weekly sequence in over two years. Hence, posting five consecutive weeks of red candles. In the first week of March, the index slipped 3.1% as initial panic over Operation Epic Fury set in. The momentum worsened in the third week of the month, during which the index crashed 4.6% in five days, its worst weekly performance since June 2022. During this period, the India VIX surged from 14.20 to 28.81, hence showing that traders are now pricing in sustained, high-magnitude daily swings.
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Domestic Buffer vs Global Stagflation
While the sell-off has been severe, the market has found a temporary floor through Domestic Institutional Investors, who have absorbed a significant portion of the FII dumping. In March, DIIs, led by LIC and major mutual funds, purchased nearly ₹1.28 lakh crore worth of shares, thus, mirroring the foreign exit. However, this domestic liquidity has struggled to overcome the stagflation narrative that is now gripping the market. With the Nifty Bank and Nifty Auto indices having corrected by 13.8% and 14.2% respectively since February, the focus has shifted from growth to survival, as soaring input costs and high interest rates threaten to erode corporate margins for the upcoming fiscal year.