A weakening rupee and high stock valuations, compared to other emerging markets have prompted foreign portfolio investors (FPIs) to pull out over ₹32,000 crore from Indian equities in July — a sharp reversal from their buying trend last month.
The rupee dropped 1.6% over the past month — from 85.49 on 27 June to 86.82 against the US dollar on Tuesday — its lowest level in five months. Due to the rupee’s fall, the BSE Dollex 30 (the dollar-linked version of Sensex) fell 4.8% from 8071.26 to 7686.39 in a month.
In contrast, the Sensex itself fell only 3.2%, from 84,059 to 81,338, showing how currency losses magnified the hit for overseas investors.
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This erosion in dollar returns has led FPIs to offload shares worth ₹32,311 crore from the cash market this month, according to data from NSDL and BSE. That’s a sharp contrast from June, when FPIs bought equities worth ₹8,467 crore as the rupee remained relatively stable, averaging 85.93 per dollar.
Currency experts believe the rupee’s weakness could persist, given the unit’s historical tendency to depreciate by 3–4% annually. Ongoing global tariff concerns and a stronger dollar are adding pressure. So far this year, the rupee has depreciated 1.36% through 29 July, suggesting room for a further 2–3% fall.
Valuation gap
Another reason for the selloff is India’s rich market valuation. The Sensex trades at a price-to-earnings (P/E) multiple of 22.63x, compared with South Korea’s Kospi at 14.10x and Hong Kong’s Hang Seng at 11.81x. These valuation gaps are especially glaring given that the Kospi ended at a four-year high of 3,230.57 and the Hang Seng flirted with a similar high at 25,524.45 on Tuesday, even as Indian markets have been correcting since late June.
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“Indian exports can be affected in the short term if a deal with the US isn’t signed before the 1 August deadline, which adds to the negative sentiment on the rupee amid a period of general dollar strength,” said Sujan Hajra, executive director and chief economist at Anand Rathi Financial Services.
Hajra added that while low oil prices and growing services exports support the rupee on the current account side, there are headwinds on the capital account. These include FPI outflows, foreign direct investment (FDI) repatriation, and a slowdown in external commercial borrowings due to higher global interest rates.
Anindya Banerjee, head of research (currency, commodities, and interest rates) at Kotak Securities, said that the rupee could trade in an 86–87.5 range to the dollar next month, with a bias to the downside especially if a trade deal with the US is not signed.
The dollar index, which tracks the greenback against a basket of six currencies including the euro, pound, yen, and Swiss franc, has risen 1.9% since 23 July, hitting an intraday level of 99.08 on Tuesday due to the ongoing tariff tensions.
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