Although Foreign Institutional Investors (FIIs) turned net buyers in February, picking up Indian equities worth Rs 22,615 crore during the month, Friday’s sharp sell-off has cast doubt on the sustainability of that trend reversal. With the Iran-Israel conflict escalating over the weekend, risk appetite could take a back seat, prompting foreign investors to adopt a wait-and-watch approach before committing fresh flows to emerging markets.

The conflict in the Middle East has triggered a risk-off situation in financial markets. It remains to be seen how the conflict will evolve and impact crude and currency markets, Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments said, commenting on the crisis. In his view, FIIs are likely to wait and watch how things evolve before making further commitments in emerging markets.

Echoing a similar sentiment, Nachiketa Sawrikar, Fund Manager at Artha Bharat Global Multiplier Fund said he expects broad selling of risky assets across both the developed and emerging markets against the backdrop of a USA-Israel attack on Iran.

He said trading activity appears increasingly tilted toward US securities, with a parallel shift in flows toward bullion, signalling the possibility of capital moving out of emerging markets. “We would expect the ongoing rally in USA treasuries, oil, gold, and silver to extend,” the expert added.

Sawrikar also sees a deeper impact of war on India, accelerating the foreign capital outflow because of its reliance on imported crude oil. “Higher crude oil prices could widen the current account deficit, stoking domestic inflation, pressure the rupee,” he warned.

Vijayakumar said FIIs buying on most days in February indicated a clear shift in their investment strategy towards India. “There are variations in sectoral investments in February. FPIs had sold heavily in IT stocks due to the Anthropic shock and the continuing weakness in this segment. But they were buyers in financial services and capital goods,” the Geojit analyst said.
While FPIs invested Rs 19,782 crores in the secondary markets, around Rs 2,832 crores was pumped-in the primary market.On Friday, FII sold shares worth Rs 7,536.36 crore, triggering a massive sell-off. The benchmark indices Nifty and the BSE Sensex, ended with deep cuts on Friday amid selling pressure across the board. Auto, financials and FMCG were major laggards while the IT sector saw selective buying action. In a volatile session, the broader Nifty edged lower by 317.90 points, or 1.25%, to close at 25,178.65, while the 30-share Sensex plunged by 961.42 points, or 1.17%, to settle at 81,287.19.

FPI trends
February recorded inflows after a sharp January exodus of Rs 35,962 crore. FIIs are still net sellers in 2026 at Rs 13,347 crore.

In 2025, the FII buying trends remained patchy, but the overall trend was bearish. They took out Rs 1,66,286 crore from Indian markets as trade deal delay and premium valuations weighed on the sentiments.

FIIs were net sellers in December, offloading domestic shares worth Rs 22,611 crore.

April–June period of 2025 witnessed inflows totalling Rs 38,673 crore. Meanwhile, massive selling to the tune of Rs 1,16,574 crore happened during the January–March quarter.