Indian equity markets have shown a notable improvement in resilience against large-scale foreign institutional investor (FII) selling, reflecting a structural shift in market dynamics driven by sustained domestic participation.

According to data compiled by Moneycontrol, March 2026 recorded the second-highest intensity of FII selling over the past decade, surpassed only by the extraordinary liquidation witnessed during the Covid-19 market crash in March 2020. However, the market response differed significantly from that earlier period.

During March 2020, FIIs sold nearly Rs 62,500 crore worth of Indian equities, equivalent to almost 3 percent of their assets under custody at the time. The unprecedented uncertainty surrounding the pandemic triggered a global flight to safety, causing the Nifty to decline by more than 30 percent from its January peak to its March low.

In contrast, March 2026 saw foreign investors sell Indian equities worth approximately Rs 1.23 lakh crore, nearly double the absolute outflows recorded during the pandemic-driven selloff. However, given the substantially larger FII asset base of around Rs 62.46 lakh crore, the selling represented nearly 2 percent of their equity holdings in India.

The selling pressure was driven by concerns over escalating geopolitical tensions, particularly fears of a broader US-Iran conflict, which briefly pushed crude oil prices to around $118 per barrel. At the same time, global investors redirected capital towards AI-led investment opportunities in markets such as Taiwan and South Korea.

Despite the scale of foreign selling, Indian equities experienced a relatively contained correction. The Nifty declined around 11 percent during March 2026 and about 15 percent from its January 2 peak to its March 30 low. Strong buying by domestic institutional investors helped absorb much of the selling pressure, preventing a sharper market decline.

The episode has reinforced the view that India's equity market structure has evolved over recent years. Consistent inflows through mutual funds, systematic investment plans (SIPs), insurance companies and retirement savings have emerged as a reliable source of domestic liquidity, reducing the market's dependence on foreign capital.

Markets are once again facing familiar challenges, including rising geopolitical tensions, elevated crude oil prices, pressure on the rupee and concerns over renewed foreign outflows. However, the experience of March 2026 suggests that heavy FII selling alone may no longer be sufficient to trigger a prolonged market correction unless accompanied by a meaningful deterioration in domestic economic or corporate fundamentals.

While geopolitical developments and energy prices remain important risks, continued domestic investment flows, healthy corporate earnings growth and relatively reasonable market valuations are expected to provide support to Indian equities in the near term.