NIFTY 50 slid 1.2% to 22,400, its lowest level since March, as foreign inflows fell to $18bn, a 40% decline from the $30bn seen in the previous quarter.
The shift follows a steep climb in US Treasury yields to 5.3%, narrowing the 7.3% yield differential that once made Indian bonds attractive.
Currency hedging costs have surged to 4.5%, signalling heightened market stress as importers rush for dollars and exporters delay currency conversions.
RBI intervened $75bn in the forex market over the last six months, yet the balance of payments deficit stands at $18bn for H2 FY26, underscoring the rupee’s vulnerability.
Analysts argue that cutting foreign portfolio taxes may not offset the administrative overhead that currently deters investors, citing a need for streamlined procedures and clearer regulations.
Market participants are watching the upcoming RBI policy meeting and the fiscal policy outlook for clues on whether reforms will accelerate capital inflows; NIFTY is expected to hover near 22,500 in the next quarter.