Sensex at 2-year low; March selloff worst since Covid amid war fears

FPIs withdraw record ₹1.23 trillion this month

Domestic equities fell more than 2 per cent on Monday, capping their steepest monthly decline since the Covid pandemic-led rout of March 2020, as escalating war in West Asia drove a sharp rise in crude oil prices and darkened the outlook for India’s growth and inflation. Brent crude was on course for a record monthly gain after Yemeni Houthi forces launched attacks on Israel, broadening the US-Israel conflict with Iran.

 

The Sensex dropped 2.22 per cent, or 1,636 points, to close at 71,948 -- its lowest level since February 14, 2024. The Nifty 50 fell 2.14 per cent, or 488 points, to 22,331, its weakest since April 7, 2025. Both indices have declined by more than 11 per cent over March.

 

 

The broader market saw a sharp erosion in investor wealth, with the total market capitalisation of BSE-listed companies shrinking by ₹51.1 trillion during the month, to ₹412.2 trillion.

 

The latest selloff was triggered by a renewed escalation in West Asia after the Houthis fired missiles at Israel over the weekend, and said they would continue operations until attacks on Iran and its proxy militant groups cease, heightening fears of prolonged disruption to global energy supplies. Brent crude briefly rose above $116 a barrel, intensifying concerns for India, one of the world’s largest oil importers. 

 

Adding to uncertainty, US President Donald Trump issued another warning to Iran on Monday to open the Strait of Hormuz or risk US attacks on its oil wells and power plants. Tehran, on the other hand, described US peace proposals as "unrealistic" and fired waves of missiles at Israel.

 

Foreign portfolio investors (FPIs) remained heavy sellers, withdrawing more than ₹1.23 trillion over the month, the largest monthly outflow on record in rupee terms, surpassing the previous high of ₹91,983 crore in October 2024. The scale of outflows ranks among the highest globally.

 

Investor sentiment, both foreign and domestic, was further weighed by tightening financial conditions. The rupee breached 95 to the dollar during intraday trade. Meanwhile, the yield on the 10-year government bond breached 7 per cent, its highest level in nearly two years.

 

Selling pressure was broad-based, with all sectoral indices ending Monday’s session and the month in negative territory. Mid and smallcap indices fell 2.7 per cent on Monday and have declined by more than 10 per cent each over March.

 

Following the sharp correction, valuations have moderated, though analysts say the trajectory for equities will hinge on developments in West Asia. The Nifty 50 is now trading at roughly 17 times one-year forward earnings, about 13 per cent below its five-year average of 19.6 times.

 

Saharsh Kumar, an equity strategist at Elara Capital, said the market appears to be approaching a support zone. “At around 17.3 times one-year forward earnings, the Nifty 50 is trading below its long-term average, placing it in a zone that has historically seen rebounds, barring extreme disruptions,” he said, adding that any easing in geopolitical tensions could limit further downside.

 

Caution, however, persists. Sailesh Raj Bhan, chief investment officer for equities at Nippon India Mutual Fund, said the duration of the crisis would be critical. “Elevated energy prices pose risks to both growth and earnings. Markets appear to be pricing in a relatively swift resolution, and any disappointment on that front could weigh on sentiment,” he said, recommending a disciplined asset allocation approach amid uncertainty.