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Elevated bond yields triggered sharp FPI outflows, pushing Nifty to test 200 EMA support

ICICIdirect Research 01 Oct 2026 DISCLAIMER

The heavy selling by Foreign Institutional Investors (FIIs), who offloaded nearly ₹45,000 crore in Indian equities in September, has dented market sentiment as Nifty tested the lowest levels since March 2026.
This week itself saw FIIs selling of ~25k crores in a truncated week. This outflow was primarily driven by global macro headwinds, including elevated U.S. bond yields and surging energy prices, which prompted foreign capital to shift toward safer havens. The intensity of this selling was further magnified toward the end of September as institutional players rebalanced portfolios to close out the quarter.
However, because much of this pressure was structural and tied to derivative expiration rather than deteriorating domestic fundamentals, such aggressive selling is unlikely to persist at the same pitch. As the market transitions into a fresh monthly series in October, a meaningful relief rally shouldn’t be ruled out.
As a result, the Nifty index extended its losing streak for the eighth consecutive week, settling at 22,422, down 3%.
The broader market mirrored the benchmark’s weakness, with both Nifty Midcap and Small Cap indices declining 3.5%. Sectoral performance was broadly negative, with all major indices ending the week in the red, except for IT. The Auto, Consumption, and Metal sectors emerged as the primary laggards, contributing to the overall market underperformance.

What we expect:

  • Nifty has marginally breached the long-term trend line however managed to hold the 200-week EMA. Historically, this zone has served as a robust floor during market corrections (Barring 2001,2008,2020), suggesting potential for stabilization or reversal.
  • Going ahead, a decisive close above 23,100 (previous week’s high) is required to signal a meaningful reversal. Else, continuation of corrective bias wherein strong support is placed at 21700
  • Furthermore, domestic events like the upcoming RBI Monetary Policy Committee meeting and the GST Council meeting should provide some clarity, while the onset of Q3 earnings reports may result a short covering move from current heavily sold.

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