DIIs Rescue Market As FPIs Sell Big In March Amid US-Iran War, Inject Rs 1.43 Lakh Crore

March has been a turbulent month for equity markets, as the war between the US, Israel, and Iran pushed crude oil prices higher, sparking fears of a global economic slowdown. The uncertainty led investors, particularly foreign portfolio investors (FPIs), to dump riskier assets to hedge their wealth in safer havens.

Data from the National Securities Depository (NSDL) showed that FPIs offloaded equities worth Rs 1.18 lakh crore during the month, their highest-ever monthly outflow.

As a result of the sustained selling pressure, benchmark indices Sensex and Nifty 50 declined by over 11 per cent in March.

Domestic Investors Cushion FPI Sell-Off

However, despite heightened volatility and geopolitical uncertainties, domestic institutional investors (DIIs) emerged as a key support for the equity markets, cushioning the heavy sell-off and more than offsetting FPI outflows.

According to NSDL data, DIIs bought equities worth Rs 1.43 lakh crore in March, almost four times higher than their buying in February, showing strong domestic support when foreign investors were exiting.

In February, DIIs bought equities worth Rs 38,266 crore, while FPIs also remained net buyers with investments of Rs 22,615 crore. In January, strong DII buying of Rs 62,329 crore absorbed FPI outflows of Rs 35,962 crore. In another instance, too, DIIs invested Rs 71,624 crore despite FPIs withdrawing Rs 22,611 crore, showing consistent domestic backing for the markets.

Mutual Funds Play Key Role In Absorbing FPI Selling

A large part of DII inflows came from mutual funds, which invested Rs 98,746 crore out of the total Rs 1.43 lakh crore, according to the Association of Mutual Funds India (Amfi).

Within this, equity mutual funds saw inflows of Rs 40,450 crore, hybrid schemes attracted Rs 16,538 crore, while exchange-traded funds (ETFs), index funds and other categories together saw inflows of Rs 30,768 crore.

Contributions through systematic investment plans (SIPs) touched a record high in March, with monthly inflows crossing the Rs 32,000 crore mark for the first time. Investors poured in Rs 32,087 crore during the month, reflecting a 7.5 per cent month-on-month (m-o-m) rise and 23.8 per cent growth on a year-on-year (y-o-y) basis.

“This underscores the faith of investors in SIPs, even amidst unfavourable market conditions,” said Amfi in its monthly note.

The number of active SIP accounts also rose 3 per cent m-o-m to 9.72 crore in March, up from 9.44 crore in February, indicating continued retail participation despite market volatility.

FPIs Remain Net Sellers Despite Recovery In April

April, however, has been kind to the markets. Both the Sensex and Nifty have recovered around 8.5 per cent so far, mostly due to a two-week truce between the two warring sides.

Despite the recovery, FPIs have extended their sell-off into April, offloading equities worth Rs 48,213 crore so far.

The US and Israel have been on the offensive against Iran since they launched their first strike on February 28, after nuclear talks failed and concerns grew over Iran’s missile and nuclear programmes. Since then, there have been repeated exchanges of missiles, drone attacks, and strikes on key oil infrastructure in the region. The war also spilt over to affect the traffic at the Strait of Hormuz, a critical shipping route that carries nearly one-fifth of the world’s oil supply.

This pushed crude oil prices up by as much as 44 per cent, raising fears of a global economic slowdown.

As of April 10, the international benchmark, Brent crude oil futures, last traded at $95.20 a barrel, up over 31 per cent from the $72.48 price quoted before the US-Iran war kicked off. Likewise, the US benchmark, West Texas Intermediate (WTI) crude oil futures, last quoted at $96.57 a barrel, up 44 per cent from $67.02 prior to the war.

Higher crude prices tend to have a ripple effect on the global economy, as they increase transportation and production costs, fuel inflation, and put pressure on both businesses and consumers.

For India, which meets more than 88 per cent of its oil requirement through imports, the impact is even more severe. Higher crude prices increase the current account deficit, weigh on the currency, and may force interest rates higher amid persistent inflation. This impacted market sentiment and made FPIs cautious, especially in emerging markets.