The ongoing Iran war has significantly disrupted financial markets across Asia, with private equity fundraising and Indian equities experiencing severe setbacks. Asia-focused private equity firms raised only $58 billion last year, marking the lowest level in over a decade and representing just 5% of global fundraising, according to Bain & Company. This downturn has persisted for four consecutive years, exacerbated by aging assets and underperforming funds, despite a modest recovery in liquidity from rebounding exit values and dealmaking activity, including IPO proceeds and mergers and acquisitions in the Asia-Pacific region [1]. Optimism that emerged late last year, as net cash flows to fund investors turned positive for the first time since 2021, is now threatened by the Iran war, which has introduced new uncertainty and prompted investors to scale back rate-cut bets and brace for a potential energy supply shock [1]. Andrew Thompson, head of asset management and private equity for Asia Pacific at KPMG, likened the current climate to the tariff situation early last year, noting that uncertainty is causing investors to pause and slow down fundraising efforts, especially with Middle Eastern investment funds taking a break from outbound commitments [1].
In India, foreign investors are poised to withdraw a record $12 billion from equities in March 2026, surpassing the previous monthly selloff record of 940 billion rupees in October 2024. This exodus is directly linked to the Iran war's disruption of oil and gas supplies, which has led to rising energy costs, panic-buying, and a squeeze on the economy. HSBC's flash Purchasing Managers' Index showed India's private-sector activity in March slowing to its weakest level since October 2022, with companies citing the Middle East conflict, unstable market conditions, and intensifying inflationary pressures as key factors. Cost inflation is now near a four-year high [2]. India, as the world's third-largest oil importer and second-largest liquefied petroleum gas consumer, faces heightened vulnerability to higher oil prices. If oil prices settle at $85-$95 a barrel post-war, incremental outflows could reach $40-$50 billion, potentially trimming India's economic growth to 6.5% from 7.2%, according to Renaissance Investment Managers CEO Pankaj Murarka [2].
India's finance minister Nirmal Sitharaman announced a cut in the special excise on petrol and diesel for domestic consumption by 10 rupees per litre each, while petroleum minister Hardeep Singh Puri stated that the government will take a "huge hit" on taxation revenues to support oil companies. The increase in India's energy bill and slowdown in remittances from the Middle East are projected to widen the country's current account and fiscal deficits. Hanna Luchnikava-Schorsch of S&P Global Market Intelligence warned that sustained higher oil prices could keep the rupee under pressure and intensify capital outflows due to global 'risk-off' sentiment and concerns over India's economic growth [2].
The Iran war, now in its fourth week, continues to cast uncertainty over the prospects for a diplomatic resolution, with investors bracing for prolonged disruptions and higher-for-longer interest rates. The turmoil has not only dampened fundraising optimism in Asia's private equity sector but also triggered record capital outflows from Indian equities, underscoring the region's vulnerability to geopolitical shocks and energy supply disruptions [1][2].
CONCLUSION
The Iran war has introduced significant uncertainty and market disruption across Asia, severely impacting private equity fundraising and triggering record foreign outflows from Indian equities. With energy supply shocks and inflationary pressures mounting, investor sentiment remains negative and capital outflows are expected to intensify. The region faces heightened risks to economic growth and financial stability as the conflict persists.