Foreign portfolio investors (FPIs) remained net sellers in Indian equities on March 20, 2026, offloading shares worth ₹5,518 crore, according to provisional exchange data. In contrast, domestic institutional investors (DIIs) emerged as strong counterbalancing forces, with net purchases of ₹5,703 crore during the session.

The divergence in flows reflects a familiar pattern seen during phases of global uncertainty, where overseas investors trim exposure while domestic pools of capital mutual funds, insurance companies, and pension funds step in to absorb selling pressure. On the day, DIIs purchased equities worth ₹22,938 crore against sales of ₹17,232 crore, indicating sustained buying interest. Meanwhile, FIIs bought shares worth ₹28,496 crore but sold a higher ₹34,015 crore, resulting in net outflows.

On a year-to-date basis, cumulative flow data indicates a marginal net sell figure from FPIs and a corresponding net buying stance from DIIs. While the absolute numbers appear modest, the directional trend is more relevant—foreign investors remain cautious, while domestic liquidity continues to anchor the market.

The broader context for this shift in investor behaviour lies in rising geopolitical tensions and macroeconomic uncertainty. As highlighted in market commentary, escalating tensions in the Middle East have led to a sharp rise in crude oil prices, which in turn has revived concerns around inflation and external account pressures for oil-importing economies like India.

At the same time, the depreciation of the Indian rupee to lower levels has added another layer of risk for foreign investors, who are sensitive not only to equity returns but also to currency movements. A weakening currency can erode returns when repatriated, often prompting FIIs to reduce exposure during such periods.

Market sentiment during the week reflected this cautious undertone. While domestic equities initially attempted a relief rally supported by valuation comfort and short covering the recovery proved short-lived. Renewed geopolitical developments triggered another spike in crude prices, reversing early gains and pushing investors into a risk-averse stance.

However, the latter part of the week showed some signs of stabilization, driven by indications of potential de-escalation in geopolitical tensions, particularly around critical oil and gas infrastructure. Even so, investor behaviour suggests reluctance to carry aggressive positions into unertain global conditions, especially heading into the weekend.

Sectoral trends during the session also provide insight into underlying market dynamics. Autos, metals, and PSU banks outperformed, largely driven by bargain hunting following recent corrections. These segments had seen sharp drawdowns in prior sessions, making valuations relatively attractive for domestic investors with a medium-term horizon.

On the other hand, sectors such as oil and gas, FMCG, real estate, and broader financial services underperformed. The pressure in these segments can be attributed to a combination of rising input costs, currency depreciation, and stock-specific concerns. For instance, higher crude prices directly impact margins in sectors dependent on fuel or raw material imports, while a weaker rupee increases cost pressures for import-heavy businesses.

From a market structure perspective, the continued participation of DIIs is playing a stabilizing role. Over the past few years, the growing depth of domestic capital—through SIP inflows and institutional allocations—has reduced the market’s vulnerability to abrupt foreign outflows. This structural shift is evident in sessions like these, where significant FII selling does not translate into sharp market declines.

Looking ahead, market direction is likely to remain closely tied to global developments. Key variables include the trajectory of crude oil prices, currency stability, and geopolitical developments in the Middle East. Additionally, upcoming macroeconomic triggers such as inflation data from major economies, commentary from the US Federal Reserve, and PMI releases across key regions will influence global risk sentiment.