Summary of this article
India focussed offshore funds saw net outflow of $3.5 billion in March quarter
FIIs pulled out around $14.2 billion in March quarter
India-focused offshore funds and exchange-traded funds (ETFs) witnessed their biggest quarterly outflows since the Covid pandemic-led market turmoil of 2020, a report by Morningstar said. Foreign investors turned cautious amid global uncertainty, rising crude oil prices and concerns over expensive valuations in Indian equities, which led to the surge in outflows.
According to the report, India-focused offshore funds and ETFs saw net outflows of nearly $5 billion during the quarter ended March 2026, sharply higher than the $1.8 billion outflow recorded in the previous quarter. Offshore India-focused mutual funds alone witnessed net outflows of $3.46 billion during the quarter, the highest since the March 2020 quarter, when outflows from such funds were at $3.58 billion. Offshore India-focused ETFs also saw net outflows of $1.5 billion, reversing inflows seen in the previous quarter.
Foreign institutional investors (FIIs) remained net sellers in Indian equities during the March quarter, pulling out around $14.2 billion from domestic markets. The selloff was due to multiple global and domestic factors, including geopolitical tensions in West Asia, elevated US bond yields, a strong US dollar and uncertainty around US Federal Reserve rate cuts, the report said.
The report said that rising crude oil prices and costly valuations in Indian equities also dampened the sentiments of foreign investors. Instead, investors preferred safer assets such as US Treasuries and the dollar amid increasing global risk aversion.
The sharp correction in Indian equities further hurt the asset base of offshore India-focused funds and ETFs. Their combined assets fell nearly 19.5 per cent to $77 billion at the end of March 2026 from about $96 billion in the previous quarter.
Among the largest offshore India funds, the BlackRock-managed iShares MSCI India ETF remained the biggest fund with assets of $6.7 billion, though it also recorded one of the largest outflows during the quarter.
During the March quarter, the BSE Sensex fell 15.5 per cent, while the BSE Smallcap Index dropped 16.1 per cent. India-focused offshore funds and ETFs delivered a negative return of 17.6 per cent during the period.
Despite the foreign selloff, domestic institutional investors and retail investors continued to support the market, helping prevent a deeper correction. The report said investor sentiment has shown some signs of stabilisation in April and May after easing geopolitical tensions and moderation in crude oil prices. However, future foreign flows will continue to depend on global economic conditions, interest rate expectations and geopolitical developments.
