Every month, roughly 9.72 crore Indian investors authorize standing bank debits under the country’s systematic investment plan (SIP, a fixed monthly contribution routed into a mutual fund) network. In March 2026 those contributions totaled ₹32,087 crore, a record at the time, and the April figure held close. Jefferies’ latest India strategy note argues that wall of monthly money helped bankroll the most sustained rupee depreciation in at least a decade.
The note, co-authored by Mahesh Nandurkar, managing director at Jefferies, alongside analysts Abhinav Sinha and Priyank Shah, makes a pointed case: the current account deficit (CAD, the measure of trade and income imbalance with the rest of the world) averaged just 0.8% of GDP across the three years through FY26, a record low for India. The rupee’s slide past 96 per dollar in calendar year 2026 owes more to an all-time collapse in capital flows, with $78 billion in equity-market outflows over two years finding a liquid exit precisely because domestic investors kept buying what foreign investors were selling.
The SIP Machine That Paved the FPI Exit
How the Exit Door Opened
When a foreign portfolio investor (FPI, an overseas institution or fund buying stocks in Indian markets) sells its equity holdings, those shares need a buyer. Since late 2024 the buyer has overwhelmingly been a domestic mutual fund deploying fresh SIP inflows. Fund managers receive incoming rupees on a fixed monthly schedule, and their mandates push them to deploy quickly. FPIs supplied the stock; SIP mandates supplied the demand. Each transaction settled cleanly in rupees. The FPI converted those rupees to dollars and repatriated the capital, and the currency moved a little lower each time.
Christopher Wood, chief global strategist at Jefferies and author of the GREED & fear investment newsletter, noted in his March 2026 edition that evidence of any SIP slowdown was absent even as equity returns turned flat. Monthly SIP contributions were averaging around Rs 30,500 crore for the three months to January 2026. By March the figure had climbed to a new record. That structural SIP habit is what made the FPI exit so orderly: no liquidity crisis, no equity market crash, just a slow currency drain.
The Numbers Behind the Trade
The scale of domestic inflows is visible in AMFI’s monthly equity fund flow statistics, which captures the force absorbing FPI selling across each quarter:
- ₹32,087 crore in SIP-specific contributions for March 2026, up 7.5% from February’s ₹29,845 crore
- ₹38,503 crore in net inflows to existing equity schemes in March 2026, a record per AMFI data, surpassing the prior high of ₹37,840 crore set in October 2024
- 9.72 crore SIP accounts active as of March 31, 2026
- ₹81.92 trillion: the mutual fund industry’s total assets under management as of April 30, 2026
Not current account deficit (CAD), but all-time low capital flows is the culprit for INR pressure. Equity market driven outflows accounted for $78 billion over the last two years, as strong domestic flows provided an easy exit to foreign capital escaping an expensive market.
Mahesh Nandurkar, managing director at Jefferies, in the brokerage’s India strategy note co-authored with Abhinav Sinha and Priyank Shah.
The balance of payments (BoP, the comprehensive record of all of India’s financial transactions with the rest of the world) consequence ran consistently. Jefferies notes the BoP has been in deficit for both FY25 and FY26, and another negative BoP year is in prospect for FY27, as strong mutual fund flows continue to absorb heavy foreign selling while the underlying currency pressure accumulates outside the equity market.
Two Years, $78 Billion, and the Record Break
The FPI selling covered in the Jefferies note runs to a net $44 billion in Indian equities from April 2024 through the period of the analysis, per the brokerage’s estimates. Across the broader two-year window, equity-market-driven outflows reached $78 billion as FPIs converted rupee sale proceeds to dollars and repatriated capital. NSDL’s calendar-year FPI investment data tracks that selling at the security registration level, showing the scale and pace of the sustained exit.
Capital account surplus has fallen from an average of 2.6% of GDP over the prior decade to just 0.5% in FY25-26, the lowest figure on record. Since the 1991 liberalization, India almost always ran a BoP surplus because capital inflows exceeded the CAD. That structural cushion has collapsed. Foreign direct investment trends were mixed over the same two-year period, per the Jefferies note, contributing to the overall capital account compression alongside the FPI exodus.
From near Rs 89 per dollar at the start of calendar 2026, the rupee has extended to successive all-time lows including a print of 96.40 per dollar in mid-May, a session in which IT stocks surged more than 3% on the currency tailwind. A weaker rupee has not historically delivered the export boost that textbook economics would suggest for India: crude oil, gold, and electronics make up the core import basket, and all three are largely price-inelastic, so the rupee import bill expands in size faster than export competitiveness improves, and the trade deficit widens alongside the currency fall.
Why CAD Gets the Blame It Doesn’t Deserve
Every market note on the rupee opens with the current account. The logic is clean: crude is expensive, India imports roughly 85% of its crude in dollars, the trade deficit is widening, and the currency falls. The causal sequence is internally consistent. The Jefferies data argues it captures the wrong variable as the primary driver.
| Metric | Conventional Read | Jefferies Finding |
|---|---|---|
| CAD as % of GDP (FY24-FY26 avg.) | Elevated, weighing on currency | 0.8% of GDP, a record low for India |
| Capital account surplus (FY25-26) | Adequate buffer against trade gap | 0.5% of GDP, an all-time low |
| FY27 CAD outlook (Jefferies base) | Set to widen above 2% on crude | Below 2%, manageable |
| Primary rupee pressure mechanism | Trade deficit on oil and gold | All-time low capital flows |
Jefferies’ FY27 CAD base case factors in crude averaging $90 per barrel from June onward, combined with a 10% decline in gold imports. Even on those assumptions the current account stays below 2% of GDP, a level India has historically managed without a currency crisis.
India’s services trade has been a structural offset on the current account side. Acuite Ratings’ Q3 FY26 balance of payments analysis confirmed India’s services surplus reached a record $57.5 billion in the October-December 2025 quarter, with IT and software exports sustaining the dollar inflow base even as crude and gold drained it on the goods side. On the current account, India is not in crisis. The capital account is where the pressure is concentrated.
At 0.8% of GDP averaged across three years, India’s CAD run was the tightest on record. A currency crisis rooted in the trade balance would typically require that figure at 3% or higher, as it was during the taper tantrum episode of 2013 that serves as the modern benchmark for INR stress. The tipping point in the current BoP came from the capital account side, specifically the collapse of net foreign portfolio inflows and the compression of net foreign direct investment.
Structural Pillars Behind the Domestic Wall
Understanding why SIP flows held steady through months of market turbulence is central to the Jefferies thesis. The domestic buying machine is not a spontaneous retail response to falling prices; it rests on four structural foundations that make monthly contributions sticky regardless of short-term sentiment.
- EPFO equity allocation: The Employees’ Provident Fund Organisation (EPFO, the statutory body managing retirement savings for India’s formal workforce) has been channeling provident fund money into equity exchange-traded funds (ETFs) on a regular schedule, adding an institutional demand floor that operates independently of individual investor decisions.
- NPS equity component: The National Pension System (NPS, India’s defined-contribution pension scheme for government and private sector employees) allocates a portion of contributions to equity funds, creating a second institutional inflow stream that is structurally divorced from short-term market moves.
- Tax advantages for equity investing: Long-term capital gains on equity mutual funds attract preferential rates compared with interest income from fixed deposits or bonds, making a monthly SIP contribution economically rational for investors in higher tax brackets even during periods of flat or negative returns.
- Behavioral inertia in standing mandates: SIP debits run automatically on the investor’s selected calendar date. Cancellation requires an active instruction to a bank or fund platform. Most investors do not issue that instruction, so flows continue even in months when fund statements show losses.
EPFO, NPS, and the tax-advantaged SIP habit together created a permanent bid under Indian equities. Foreign investors operating in Indian markets knew that bid was there, and it lowered the friction cost of a large exit. AMFI’s industry AUM and flow data shows equity scheme net inflows have run positive for more than 60 consecutive months through April 2026, a streak that covered the entire duration of the FPI selling episode without a single break.
Three Triggers That Could Flip the FPI Tide
Jefferies’ analysis of the four prior episodes when the rupee fell more than 10% in a 12-month window found that FPI flows surged back in the following 12 months in three of those four cases. The brokerage identifies three conditions most likely to produce a comparable reversal from the current position.
- A valuation correction in Indian equities: Indian stocks were trading at a premium multiple relative to emerging market peers when FPI selling accelerated in late 2024. Sustained domestic buying has kept valuations elevated despite the outflows. If corporate earnings disappoint or the buying pace slows, a re-rating lower could make Indian equities attractive enough for foreign capital to return at scale.
- The AI trade unwinding: Global artificial intelligence (AI) infrastructure spending has concentrated institutional capital in US technology and semiconductor stocks. Christopher Wood flagged in March 2026 that four major US hyperscalers were guiding investors for a combined $620 billion in AI capex for the current year, and that return-on-investment questions were mounting. If that thematic trade decelerates, emerging market equity funds would need destinations for redeployment, and India would be a natural candidate given its growth profile.
- Strait of Hormuz resolution: A diplomatic outcome that normalizes oil shipping through the Strait of Hormuz (the Persian Gulf maritime passage through which roughly 20% of global crude oil flows) would ease Brent crude prices, narrow India’s merchandise trade deficit, and reduce the structural dollar demand from Indian refiners. Jefferies lists this geopolitical variable alongside its two financial-market triggers as a potential path to rupee stabilization.
None of the three sits on an obvious near-term timeline. The AI capex cycle is still running. US-Iran diplomacy remains unresolved. Indian equity valuations, while less extended than at the September 2024 market peak, are not at the levels that have historically triggered large-scale FPI re-entry into the country.
What the historical pattern does suggest is that the current sequence, a sustained depreciation episode absorbed by domestic flow stability, has previously resolved with a sharp foreign capital reversal once external conditions shifted. In three of the four prior comparable episodes, the timing depended on the trigger; the direction of the subsequent flow, when conditions changed, was unambiguous.
The SIP investor who authorizes a monthly debit to a mutual fund account is, without intending to, providing the exit liquidity that FPIs needed to move a large volume of capital out of Indian equities over two years. The equity market held up through the process. The currency absorbed the cost. Until the AI investment cycle peaks, Brent crude cools, or Indian valuations correct enough to look cheap on a global screen, the rupee’s path back toward 90 runs through conditions that India’s domestic investors cannot themselves create.
Disclaimer: This article is for informational purposes only and does not constitute investment or financial advice. Currency markets and mutual fund investments carry risk. Figures are sourced from Jefferies’ India strategy note, AMFI, and publicly available data as of the date of publication. Readers should consult a SEBI-registered financial advisor before making investment decisions.
