The heat of the war raging in the Gulf countries has reached the Indian stock market. Foreign Institutional Investors (FIIs) have shown such panic on Dalal Street, which has destroyed all the old records of history. More than $12 billion has been withdrawn from the Indian equity market in the month of March alone (till Friday). This is the largest withdrawal in a month in the history of the stock market. The skyrocketing prices of crude oil and the continuously weakening rupee have increased the concern of common investors, as it is directly impacting the returns of their equity portfolio and mutual funds.

Tsunami of selling, Covid era left behind

This selloff is not a correction. This withdrawal has far left behind the historical decline of Rs 94,000 crore in October 2024, Rs 78,027 crore in January 2025 and even Rs 61,897 crore in March 2020 during the Covid pandemic. Since February 26, two days before the start of the Gulf War on February 28, foreign investors have remained only sellers in every trading session. The direct impact of this tsunami is visible on the indices. Nifty has fallen by about 11% in the last one month. At the same time, a huge decline of 16% has been recorded in Nifty Bank and 19% in Nifty PSU Bank.

Why are foreign investors fleeing the market?

According to market experts, there are many serious economic reasons hidden behind this nervousness. There has been a huge weakness in the global stock markets due to the war in West Asia. Along with this, the continuous decline in the rupee, the fear of reduction in remittances coming to India from the Gulf region and the negative impact of expensive crude oil on India's economic growth rate are scaring foreign investors.

Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments, says that this 'risk-off' trend is going on not only in India but also in other emerging markets like Taiwan and South Korea. However, a fundamental problem for India is that the returns of the Indian market in the last 18 months have been weak compared to other markets. Unless the war stops and crude oil prices fall, there is little hope of this selling stopping.

Global brokerage house warns, will the market fall further?

Amidst this historic decline, the world's big brokerage firms have reduced the rating of the Indian market, due to which the fear of retail investors has increased further.

1. Goldman Sachs: This American investment bank has reduced its outlook to 'Marketweight' and has cut the Nifty target from 29,300 to 25,900 for the next 12 months. They estimate that due to energy shock there will be a huge decline in the profits of companies.
2. Bernstein: This firm has set the year-end target of Nifty at 26,000 and has warned that in the worst case the market may fall to the level of 19,000.
3. Nomura: The firm has reduced its target by 15% to 24,900. Nomura has compared the situation to the Russia-Ukraine war of 2022, when investors returned only after oil prices stabilized and the market became cheap.

What is the signal for common investors

While on one hand there is a dark shadow of pessimism in the market, on the other hand the view of Kotak Institutional Equities provides some relief to the common investors. The firm believes that after this sharp decline of the last 3-4 weeks, 'value' (shares at the right price) is now emerging in many parts of the market and shares. It would be wrong to consider this decline due to the Iran-America conflict as a permanent decline in the profits of companies.