Rupee Slides to ₹88.26 – What This Means for India’s Markets

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01 Sep, 2025

Rupee Slides to ₹88.26 – What This Means for India’s Markets

The Indian rupee weakened by 17 paise, slipping to ₹88.26 per US dollar , driven by sustained foreign fund outflows and lingering concerns over hefty US tariffs.

What’s driving the decline?

FPI Outflows: Foreign Portfolio Investors FPIs are accelerating their exits—August alone saw the highest outflow in seven months at $4 billion ~₹34,993 crore, fueled by elevated US tariffs and soft investor sentiment.

Rising Tariffs: The US has imposed punitive duties—up to 50%—on Indian exports like textiles and engineering goods, which undermines export competitiveness and weakens investor confidence.

RBI’s Cautious Intervention: The Reserve Bank of India intervened to stem deeper depreciation, but has stopped short of aggressively defending a specific exchange rate level, indicating a possible shift in strategy toward tolerating gradual depreciation.

Impact on Indian Markets

Currency & Forex

Near Historic Lows: The rupee is hovering near its all-time low—just shy of ₹88.30—making it one of Asia's worst-performing major currencies in 2025.

Continued Pressure Ahead: Experts warn the rupee may remain under pressure due to speculative activity, high import demand, and thin capital inflows.

Equities & Investors

Market Declines:The broader market is feeling the heat. The Nifty fell 1.78% and Sensex dropped 1.84% over the past week—marking their worst weekly performance in five months. Midcap and smallcap segments fared even worse.

Record-low FPI Holdings: So far in 2025, FPI holdings in Indian equities have declined to 15-year lows, though Domestic Institutional Investors DIIs are stepping in to partially cushion the blow.

Bonds & Fiscal Outlook

Bond Yields Rise: With export headwinds and fiscal concerns mounting, the 10-year government bond yield has ticked upward recently ~6.57%, as markets brace for potential GST reforms and fiscal updates.

Growth vs. Stability: Despite strong Q1 FY26 GDP 7.8%, analysts caution that the export slowdown and shrinking margins may lead to a moderation in growth in the coming quarters.

Summary Table

Factor   Impact on Indian Markets
FPI Outflows   Weaker rupee, pressure on equities
U.S. Tariffs   Hurt exporters, increase trade deficit
RBI Intervention Strategy   Limited defense, potential depreciation
Equity Market Turnover   Nifty/Sensex down, weak mid/small caps
Bond Market   Yields rising amid fiscal caution
Future Outlook   Growth could slow; currency may stay weak

By Nehal Taparia

This content is for educational and knowledge purposes only and should not be considered as investment or Trading advice. Please consult a certified financial advisor before making any investment or Trading decisions.

Our Recent FAQS

Frequently Asked Question &
Answers Here

1. Why did the rupee fall to ₹88.26?

It weakened primarily due to escalating FPI outflows and rising US tariffs on Indian exports, compounded by limited RBI intervention.

2. How severe are FPI outflows right now?

In August, net outflows hit $4 billion , the highest in seven months, with total Indian equity outflows nearing ₹35,000 crore.

3. What impact are U.S. tariffs having?

The U.S. has slapped up to 50% tariffs on key Indian export sectors, dampening earnings outlook and global investor sentiment.

4. Is RBI stepping in to defend the rupee?

Yes—but cautiously. RBI’s muted response suggests it's stepping back from defending specific levels, possibly letting a controlled depreciation support exporters.

5. How are Indian equities responding?

Markets are reacting sharply—benchmark indices slid over the past week, with midcaps and smallcaps falling even more. FPIs are reducing exposure, though DIIs are providing some support.

6. How are bond markets reacting?

Bond yields are inching up due to fiscal uncertainty, potential GST reforms, and general economic unease.

7. Is India’s economic growth at risk?

While Q1 FY26 GDP came in strong 7.8%, growth may taper off in upcoming quarters as export headwinds bite.

8. What’s next for the rupee?

The rupee may remain under downward pressure due to continued FPI selling, speculative dollar bets, and import demand.