Amid heightened volatility linked to the escalating conflict in West Asia, foreign investors made a tentative return to Indian equities, offering some cushion to a sharply declining market. On March 2, foreign institutional investors (FIIs/FPIs) were net buyers of ₹3,296 crore worth of shares, according to provisional exchange data, while domestic institutional investors (DIIs) extended strong support with net purchases of ₹8,594 crore.

Despite this buying, Indian benchmarks closed significantly lower, underscoring the dominance of global risk-off sentiment. The Sensex fell 1,048 points, or 1.29%, to 80,238.85, while the Nifty declined 312.95 points, or 1.24%, to 24,865.70. Broader markets mirrored the weakness, with midcap and smallcap indices losing about 1.5% each.

Intraday activity reveals a complex picture beneath the surface. DIIs bought shares worth ₹21,111 crore and sold ₹12,517 crore, reflecting active portfolio adjustments but strong net accumulation. FIIs, meanwhile, purchased ₹12,737 crore of equities but offloaded ₹16,033 crore, resulting in a smaller net inflow despite substantial gross activity.

For the year so far, foreign investors remain heavy net sellers, having pulled out ₹50,581 crore from Indian equities. In contrast, domestic institutions have emerged as the primary stabilizing force, with net purchases exceeding ₹1.16 lakh crore. This divergence highlights a structural shift in market ownership where domestic flows increasingly offset global capital volatility.

The selloff was broad-based across sectors. Except for metals, all sectoral indices ended in negative territory, with automobiles, consumer durables, and oil & gas declining around 2% each. Market participants attributed the weakness largely to fears of rising input costs and inflationary pressures stemming from higher crude oil prices.

Sector-specific reactions further reflected the geopolitical backdrop. Oil marketing companies and paint manufacturers faced pressure due to concerns over cost escalation if crude prices remain elevated. Aviation stocks also witnessed profit booking amid expectations of higher aviation turbine fuel prices, which directly affect profitability.

Conversely, upstream energy companies benefited from stronger crude prices, offering limited support to the indices. Defensive sectors such as fast-moving consumer goods and select pharmaceutical stocks showed relative resilience, as investors rotated into earnings-stable businesses during uncertain times.

Market experts noted that the day’s trading pattern was driven more by headlines than fundamentals. According to market commentary, geopolitical escalation has heightened volatility, making investors cautious despite relatively strong domestic macroeconomic indicators.

India’s economic fundamentals remain broadly supportive. Corporate earnings expectations are steady, inflation remains manageable relative to peers, and systematic investment plan (SIP) inflows continue to provide a reliable domestic liquidity base. However, near-term sentiment is increasingly tied to global developments, particularly crude oil trajectories and conflict escalation risks.

From a market structure perspective, the return of foreign investors as net buyers—even modestly—may indicate selective re-entry rather than a full reversal of outflows. Global funds often rebalance portfolios during volatility, seeking relatively resilient emerging markets. India’s growth outlook and stable policy environment still position it favorably compared with many peers.