Indian Stock Indices Decline As Rupee Crashes Past 90 vs USD: What’s Driving The Sell-Off?

The Indian rupee breached the psychological 90-per-dollar barrier for the first time ever on Wednesday, touching an intra-day low of 90.13 before closing weak.

The sharp currency depreciation triggered fresh risk-aversion in domestic equities, pulling the Nifty 50 and Sensex lower from their lifetime highs and extending the correction for a second straight session.

Persistent dollar demand from importers, continued foreign portfolio outflows, softening capital inflows and uncertainty surrounding a possible India-US trade deal have collectively battered the currency. Despite the Reserve Bank of India’s regular interventions in the forex market, the central bank’s relatively muted response in recent sessions has allowed the slide to accelerate.

Market participants now await the RBI’s monetary policy outcome on December 5 for clearer signals on whether the central bank will adopt a more aggressive stance to defend the currency.

Foreign investors have pulled out over Rs 1.48 lakh crore from Indian equities in the calendar year 2025 so far. December alone has already seen Rs 4,335 crore of net selling till December 2, adding to the downward spiral in both the rupee and stock indices.

The banking pack bore the brunt of today’s decline. Private-sector heavyweights such as HDFC Bank and ICICI Bank corrected sharply after the NSE announced revised weightage caps for derivatives-linked indices to reduce concentration risk.

Meanwhile, public-sector banks plunged after the Finance Ministry categorically ruled out any near-term increase in the 20% FDI ceiling, dashing hopes that had fuelled a 20%-plus rally in the PSU Bank index over the past three months.

Sugandha Sachdeva, Founder of SS WealthStreet, explained the confluence of factors weighing on sentiment:

“Nifty and Bank Nifty have retreated from record highs as profit-booking emerged at elevated levels, with markets failing to attract strong follow-through buying. Investor sentiment has turned cautious, particularly after the Indian Rupee weakened to a fresh record low near the 90.30 mark, adding pressure on the domestic equities.

Selling was more pronounced in the banking space. Private banks saw profit-booking as the Nifty Private Bank Index adjusted to changes in index weightages. Heavyweights like HDFC Bank and ICICI Bank were among the top laggards as banks reacted to SEBI’s recent directive.

Simultaneously, PSU banks also faced a sharp correction after the Finance Ministry clarified that there is no proposal to raise the FDI limit in state-run banks.

Adding to the pressure, FII outflows have persisted for four consecutive sessions, contributing to the cautious market tone.”

Swapnil Aggarwal, Director, VSRK Capital also said, “The Indian rupee weakened to a fresh record low due to strong demand for the US dollar, pressure from FII outflows, and weak global risk sentiment. The US dollar has been strengthening mainly because of higher US interest rates, which has shifted investor preference toward dollar assets.”

He added, “At the same time, domestic factors have added to the pressure as oil companies and importers increased their dollar buying, further impacting the rupee’s movement. Together, these factors have created a supply-demand imbalance in the foreign exchange market, leading to depreciation pressures on the local currency.”

“The Reserve Bank of India (RBI) is likely to step in to manage the situation; however, its intervention may remain limited. The central bank’s focus is expected to be on preventing sharp and sudden volatility rather than defending any specific level of the rupee. As a result, some fluctuation in the currency may continue in the near term,” he noted.

From a chart perspective, the Nifty has formed a potential double-top near 26,277-26,319 and is struggling to regain momentum. Sachdeva highlights that “the benchmark Nifty finds strong support in the 25,850-25,920 zone, which will be crucial to watch for near-term market direction. A convincing break of 26,320 resistance can even lead the benchmark index to new highs towards 27,400 in the coming months.”

While India’s Q2 FY26 GDP growth surprised positively at 8.2% and inflation has cooled dramatically, global uncertainties, including delays in the India-US trade agreement and sustained FII selling, continue to overshadow domestic resilience and keep investors on the back foot.

In short, until the rupee finds a floor and foreign outflows ease, Indian equities are likely to remain under pressure despite otherwise robust fundamentals.

Also Read: Rupee Weakens Past 90: What India’s Trade Tensions With US Mean For You