India’s Strong SIP Inflows May Be Pressuring The Rupee, Foreign Investors Using Domestic Liquidity To Exit Markets: Jefferies

Mumbai: Global brokerage Jefferies has said that the recent weakness in the Indian rupee may not be mainly due to rising crude oil prices or current account deficit concerns.

Instead, the brokerage believes strong domestic equity inflows through SIPs are helping foreign investors exit Indian markets, which is adding pressure on the rupee.

Foreign Investors Continue Heavy Selling

According to the report, foreign portfolio investors (FPIs), private equity firms and foreign promoters have been reducing their holdings in Indian equities over the past two years.

Jefferies estimated that total equity market-driven outflows have reached nearly $78 billion during this period.

The brokerage said foreign investors consider Indian markets relatively expensive and are using strong domestic demand to sell their stakes.

Domestic Investors Absorbing The Selling

Despite heavy foreign selling, Indian stock markets have remained stable because domestic investors continued investing regularly through SIPs, mutual funds and retirement-linked schemes.

Steady investments from retail investors, Employees’ Provident Fund Organisation (EPFO) and National Pension System (NPS) helped absorb the selling pressure.

The report noted that strong domestic liquidity gave foreign investors an easy exit route without causing a major market crash.

Record FPI Selling

Jefferies said FPIs sold a record $21 billion worth of Indian equities during FY26 and have continued selling in FY27 as well.

Since April 2024, foreign investors alone have sold Indian equities worth nearly $44 billion on a net basis.

Pressure On Capital Account

The brokerage warned that the trend is weakening India’s capital account position.

India’s capital account surplus reportedly fell to around 0.5 per cent of GDP in FY25 and FY26, the lowest level ever recorded.

This is much lower than the average surplus of 2.6 per cent seen over the previous decade.

Weak Foreign Investment A Concern

Net foreign direct investment (FDI) also remained weak at around $5 billion over the last two years.

As a result, India’s balance of payments has stayed negative during this period.

However, Jefferies said the situation may improve if foreign investor sentiment turns positive again, as past sharp rupee falls were often followed by strong FPI inflows later.