Sovereign wealth funds stay put amid West Asia crisis, shows data

FPIs were net equity sellers in March, first full month after the conflict began

Fears of sovereign wealth funds selling their investments to meet domestic financial requirements amid the Iran conflict have not proved right for India, at least thus far.

 

The share of sovereign wealth funds as a share of foreign portfolio investments actually showed a slight increase in March, shows a Business Standard analysis of depository data. Sovereign wealth funds accounted for 6.5 per cent of all foreign portfolio investor (FPI) holdings in March, compared to 6.4 per cent in February. This came even as foreign investors were net equity sellers to the tune of ₹1.2 trillion in March alone, the first full month after the Iran conflict began towards the end of February.

 

Sovereign wealth funds saw a lower decline (12 per cent) than the 13 per cent fall seen for FPIs overall in equities. The drop in assets would also reflect the overall market decline, with the BSE Sensex falling 11.5 per cent. Sovereign wealth funds’ share of FPI holdings in equity was at 6.9 per cent in March compared to 6.8 per cent in February. The debt share was broadly the same at 0.6 per cent. Sovereign share in hybrid securities rose to 23.3 per cent in March compared to 22.6 per cent in February. Sovereign wealth funds held ₹4.5 trillion across assets as of March.

 

The relatively small size of India in a lot of sovereign fund portfolios, and the recent underperformance may have resulted in lower liquidation pressures, according to Praveen Jagwani, chief executive officer (CEO) at UTI International. 

 

“If you are running a global allocation portfolio, you express risk aversion by selling what is doing well... India is a small allocation, and India is a diversifier,” he said.

 

India appears to be less correlated with the equity markets elsewhere. All emerging markets (EMs)

 

were doing poorly earlier, that is no longer the case. Taiwan, China, and South Korea have all given outsized returns over the last one year — ranging from 20 per cent to 150 per cent — even as the Nifty 50 has been flat.

 

And, earnings momentum in the fourth quarter of financial year 2025-26 (Q4FY26) is expected to have been affected by higher crude oil prices, according to an April 7 India Strategy report from Motilal Oswal Financial services. The report is authored by Abhishek Saraf, Deven Mistry, and Anshul Agarawal.

 

“The lower growth in Q4FY26 is clearly attributable to the impact of higher crude oil and gas prices flowing through various energy and crude derivative-consuming sectors. This is also reflected in our earnings revisions, as the trend of positive earnings revisions over the past two quarters reversed in March 2026,” the report said.

 

“Once the war dust settles, there is a high likelihood of a better... (FPI flows), and even an abatement in outflows will be taken positively by the market, while... positive flows can lead to sharper rallies,” it added.

 

The rupee fell by around a tenth from 85.58 to 94.65 against the dollar over FY25.This meant that foreign investors lost nearly a tenth of their India investment value through rupee depreciation alone in the last one year.

 

Currency pressures persist, though valuations are more attractive now in larger companies. Foreign outflows may not immediately reverse. Gulf sovereign wealth funds will continue facing pressure to meet lower government revenues through asset sales if the conflict persists, according to Jagwani.

 

“It’s not over by any chance,” he said.