Indian equity benchmarks have fallen for eight consecutive weeks now, the first time in almost 25 years. The Indian equity market is among the worst performers across the globe this year.
In September, the benchmark indices logged their worst monthly performance since March. Both the Nifty 50 and Sensex plunged 6% in September, with the latter dropping nearly 4,500 points last month.
Why did Indian markets fall sharply in September?
A myriad of factors have contributed to this September slump. These include worries about a lack of artificial intelligence-led stocks, crude oil prices hovering over $100 per barrel, a surge in US treasury yields to multi-year highs, and persistent selling by foreign institutional investors.
“We would attribute apathy among FPI investors to broader apathy for India, given (1) risks to India’s macro from high oil prices and (2) relative lower attractiveness of India versus other markets,” Sanjeev Prasad, MD & Co-Head, Kotak Institutional Equities said in a note.
In March, the Nifty had plummeted 11% as the war in West Asia started and oil prices soared. What most market participants had anticipated as a short-term military conflict that will be resolved within weeks if not days, has now lasted seven months. The war also spilled over to Iran’s neighbours in the region, resulting in oil prices touching as high as $122 per barrel.
India is one of the largest consumers of crude oil in the world and is also heavily dependent on imports to sustain this demand. Crude oil price over $100 per barrel for weeks raises the country’s import bill, affecting equity markets and the currency.
Last month, however, one more contributor to the fall emerged. The surge in US Treasury yields to multi-year highs has further dampened sentiment. This has intensified foreign investment outflows from the local market, which is already the least attractive among emerging markets.
What Hit Markets In September
| Pressure point | How it hurt markets |
|---|---|
| Crude above $100/barrel | Raised concerns over India’s import bill, inflation and rupee pressure |
| US 10-year yield near 5.3% | Made emerging markets less attractive for foreign investors |
| FII selling | Foreign investors sold heavily in the cash market through September |
| Weak global liquidity | Reduced risk appetite for equities |
| Lack of AI-led winners | India looked less attractive compared with markets with strong AI-linked themes |
Foreign outflows: The continuing concern
Foreign investors net offloaded shares worth Rs 44,000 crores from the equity cash market in September, according to NSDL data. These investors have sold shares worth Rs 2.60 lakh crore so far in 2026.
“The sustained FII selling became intense during the last two trading days (of September) when the FIIs sold equity for a total of Rs 20128 crores. With the US 10-year bond yield rising further to 5.3%, FIIs may continue to sell,” V K Vijayakumar, Chief Investment Strategist at Geojit Investments said in a note.
However, Vijayakumar highlighted a contradiction in the FII activity. He noted that while FIIs have been selling through the exchanges, they have been consistently investing through the primary market and also buying expensive mid-and small-caps.
“While FIIs sold equity for Rs 45,536 crores through the exchanges in September, they invested Rs 9676 crores through the primary market. The strength in the US bond yields and expectations of further weakness in the Indian large-caps might be the reason for this apparently inconsistent FII activity,” Vijayakumar said.
Markets: Outlook for October
“The key takeaway for October is that domestic fundamentals alone may not be sufficient to drive a sustained recovery while global liquidity remains tight,” Vikram Kasat, Chief Business Officer – Advisory and Dealing at PL Capital, said in a note. Kasat said investors should prioritise earnings visibility, balance-sheet strength and domestic-demand themes, while closely tracking crude oil, currency and global bond yields.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.