Indian Rupee Remains Under Pressure Despite Domestic Institutional Support

The Indian rupee continues to face downward pressure as foreign portfolio investor (FPI) outflows from secondary equity markets consistently exceed capital inflows into initial public offerings. While domestic institutional investors (DIIs) have provided significant liquidity to stabilize equity prices, this domestic capital does not mitigate the structural demand for foreign currency generated by net FPI selling.

FPIs recorded net equity outflows of $27.8 billion through September 2026, driven by concerns over corporate earnings, high valuation premiums, and global trade policy shifts. Although DIIs have matched this volume with equivalent inflows, the mechanism of domestic investment does not neutralize the currency-specific impact of foreign capital repatriation.

Foreign investors have shifted their strategy toward primary market IPOs to secure more favorable entry valuations in emerging sectors. However, these primary market inflows remain insufficient to offset the broader secondary market sell-off. The divergence between domestic liquidity and foreign capital flight continues to challenge the rupee's stability amid ongoing global monetary policy tightening.