Global brokerage firm Jefferies has stated that the recent decline of the Indian rupee is primarily due to robust domestic investments and foreign selling, overshadowing concerns related to crude oil prices and the current account deficit.
In its report titled “INR Pressure – The Downside of SIP,” the firm highlighted that strong domestic investments through Systematic Investment Plans (SIPs) and continuous selling by Foreign Institutional Investors (FIIs) are significant contributors to the rupee’s depreciation.
Jefferies estimated that over the past two years, foreign investors have withdrawn approximately $78 billion from the Indian stock market. Despite strong domestic investments, foreign portfolio investors (FPIs), private equity firms, and foreign promoters have reduced their stakes in the high-valued Indian market.
The brokerage noted that the influx of strong domestic investments through SIPs, mutual funds, and retirement-linked investments has provided foreign investors with an exit route amid heavy selling pressure.
According to the report, FPIs sold Indian stocks worth a record $21 billion in the fiscal year 2026 and have remained net sellers in fiscal year 2027 as well. Since April 2024, FPIs alone have sold Indian shares valued at $44 billion.
Despite a significant surge in foreign investments, benchmark equity indices have remained relatively stable as domestic institutional and retail investors continue to absorb the selling pressure through steady SIP investments and increasing allocations from EPFO and NPS-related investments.
However, Jefferies cautioned that this trend has weakened India’s capital account position. The firm noted that during fiscal years 2025 and 2026, India’s capital account surplus fell to approximately 0.5% of GDP, the lowest level recorded, compared to an average surplus of 2.6% over the past decade.
At the same time, due to stake sales by promoters and private equity investors, net Foreign Direct Investment (FDI) remained stable at around $5 billion over the two-year period.
As a result, India’s balance of payments has remained negative for the past two years, and Jefferies anticipates continued weakness in the coming year. However, the brokerage believes that improvements in foreign investor confidence could lead to a recovery in the situation.