Summary of this article
FPIs sold Rs 60,655 crore in financials in March, over half of total outflows amid US-Iran war-driven risk-off sentiment
Much of the selling came from HDFC Bank amid governance concerns at the private bank
Financials’ share in FPI's total assets under custody fell from 32.41 per cent to 30.50 per cent m-o-m
Foreign portfolio investors (FPIs) sold financial services stocks worth Rs 60,655 crore in March, accounting for more than half of the record total Rs 1,17,775 crore FPI sell-off during the month, according to data from National Securities Depository (NSDL). March saw the biggest monthly FPI outflow on record, as the US-Iran war rattled investor confidence and triggered a risk-off sentiment.
As of April 7, Nifty Bank, which captures the collective performance of the country’s 14 most valuable and actively traded banking stocks, was down nearly 13 per cent.
Previously, FPIs had increased their exposure to the sector by Rs 8,418 crore in February, after reducing it by Rs 8,592 crore in January.
The US-Iran war, a weaker rupee and rising crude oil prices made Indian banks less attractive for FPIs.
The US and Israel had launched a joint military operation against Iran on February 28 after nuclear talks failed and concerns grew over Iran’s missile and nuclear programmes. Since then, there have been exchanges of missiles, drone attacks and strikes on key oil infrastructure, and tensions around the Strait of Hormuz, a critical shipping route which carries one-fifth of the world’s total global oil supply. This pushed crude oil prices up by as much as 67 per cent.
Why FPIs Turned Bearish On Financials
Governance Crisis At HDFC Bank: Much of the sell-off in the financial services sector has come from HDFC Bank shares amid a governance crisis at the private lending firm. On March 18, Atanu Chakraborty tendered his resignation as the Part-time Chairman and Independent Director of the Bank with immediate effect.
"Certain happenings and practices within the bank, that I have observed over last two years, are not in congruence with my personal Values and Ethics. This is the basis of my aforementioned decision," Chakraborty wrote in his resignation letter.
In the days following the announcement, the HDFC Bank's stock declined by up to 13 per cent during the remainder of the month.
During the March 2026 quarter, FPIs offloaded 3.62 per cent of their stake in HDFC Bank. Data from the National Stock Exchange (NSE) shows FPIs sold 47.95 crore shares in the quarter, bringing their holding down to 44.05 per cent from 47.67 per cent at the end of December 2025. The number of FPI investors in the bank also shrunk to 2,528 by March-end from 2,757 in the previous quarter.
The sell-off in the banking stock was absorbed by DIIs, which increased their stakes to 40.31 per cent in the March quarter from 37.18 per cent in December quarter.
FPIs Exit Where Exposure Is Highest: The financial services sector constitutes around one-third of the total assets under custody (AUC) of FPIs, the highest among all sectors. Oil, gas and consumable fuels (7.87 per cent) come next, followed by auto and auto ancillaries (7.53 per cent), as of March 31, 2026.
FPIs typically exit the sectors where they are most heavily invested, which explains the sheer scale of the sell-off. They are disproportionately exposed to large private banks, holding as much as 50 per cent stakes in names like HDFC Bank and ICICI Bank. This is why these stocks are usually the first to see selling when foreign investors sell.
As of February 28, 2026, financial services accounted for 32.41 per cent of FPIs’ total assets under custody (AUC). This share declined to 30.50 per cent by March 31, 2026.
