The Indian rupee has been under strong pressure this year, falling more than 6% year-to-date against the US dollar largely due to the massive foreign capital outflow amid higher crude oil prices, driven by the Middle East conflict, India’s inflating import bill, and widening current account deficit, which is straining the country’s fiscal position.
While each of these factors has contributed to the domestic currency’s weakness, relentless selling by the foreign portfolio investors (FPIs) is the most critical factor behind the rupee’s fall. And why are FPIs selling- because of earnings-growth mismatch, better opportunities outside India, and also, because they have an opportunity to exit the country.
According to global brokerage firm Jefferies, a strong inflow of retail money through a systematic investment plan, or SIP, has played a key role in making FPIs exit India, which in turn has hit the Indian rupee hard.
FPIs have been on a selling spree
Foreign portfolio investors (FPIs) have consistently sold Indian equities in the cash segment since July 2025, withdrawing over ₹4.5 lakh crore by May 24, 2026.
On the other hand, DIIs have been buying relentlessly. So far this year, domestic investors have pumped about ₹3.6 lakh crore into Indian equities in the cash segment, compared with FPIs’ net selling of ₹2.7 lakh crore.
While a mix of geopolitical uncertainties, weak corporate earnings, stretched valuations, and the absence of a strong AI theme has driven FPIs away from Indian markets, domestic institutional investors (DIIs) have continued to bet on India’s long-term growth story, backed by steady retail inflows.
Strong domestic flows, as per Jefferies, provided an easy exit to FPIs, which wanted to escape an expensive market.
SIP boom a bane?
Not really, say experts. For example, veteran fund manager and the founder of Helios Capital, , has defended retail investing through SIPs and argued that critics of SIP-driven flows were overlooking an important question- where else would Indian household savings have gone if not into equities through SIPs.
Arora said preventing FIIs or PE investors from exiting might have led to weaker market performance and reduced attractiveness of India for future foreign investments.
Experts highlight that the bull rally from Nifty at 7,511 in April 2020 to 26,126 in September 2024 attracted a lot of newbies into the market. The spectacular returns during this period emboldened the investors to invest big in SIPs.
The influx of retail investors supported the market even during times of heavy FPI outflow.
VK Vijayakumar, Chief Investment Strategist, Geojit Investments, said while it can be argued that this SIP boom gave FPIs an easy exit when the market turned weak, the currency has been turning weak, particularly after the West Asia crisis broke out, when the current account deficit started widening.
He believes that when the Strait of Hormuz is opened, and crude oil prices fall, the rupee will stabilise and even strengthen.
However, it remains a fact that the domestic currency is sensitive to capital flows and sustained foreign outflows can pressure the rupee.
“India’s SIP boom has become a key stabilising force during periods of FPI outflows. Strong and consistent retail mutual fund inflows have created a domestic liquidity cushion, allowing local investors to absorb foreign selling without major market disruption. At the same time, robust domestic participation has provided FPIs a smoother exit window,” Aakanksha Shukla, AVP- Wealth Management at Master Capital Services, noted.
“Sustained foreign outflows still increase dollar demand and can pressure the rupee, highlighting that currency stability remains sensitive to global liquidity conditions and capital flows,” said Shukla.
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