The rupee has slid from about 85 per dollar in January 2025 to over 96 by mid-May 2026, a loss of roughly 12%.
It is not one problem. It is four problems feeding each other, and we have covered each one in this series.
Force 1: The tech meltdown
India’s biggest export success story, IT services, cracked. The Nifty IT index fell 31% in the first half of 2026 on fears that AI will automate outsourcing work. A weaker export engine means fewer dollars earned and a weaker case for investing in India.
Force 2: Record Indian government borrowing
The Centre’s biggest ever loan, ₹17.2 lakh crore for FY27, flooded the bond market, pushed the 10-year yield past 6.70% and knocked bank stocks down within a day. To foreign eyes, it also signalled fiscal stress.
Force 3: The FII exit Indian market 2026
Foreign investors pulled a record ₹2.2 lakh crore from Indian stocks in 2026, the worst exit since 1993. To take money home, they sell rupees and buy dollars. Every crore that leaves pushes the rupee down a little more.
Force 4: External shocks
The US-Iran conflict sent crude oil above $100, and India pays its massive oil bill in dollars. Meanwhile high US interest rates pulled global money toward America, strengthening the dollar against almost every currency.
Put together
More dollars demanded, fewer dollars supplied. The rupee falls. Simple as that.
The loop that feeds itself
A weak rupee then makes oil and imports costlier, pushes inflation up, and shrinks foreign investors’ dollar returns. So they sell more, weakening the rupee further.
Market strategists note this exact spiral: sustained FPI selling and a widening current account deficit pushed the rupee from near 90 at the start of 2026 to 96.14 by 15 May2026
The one cushion is steady SIP money from Indian households, which has absorbed much of the foreign selling and kept a slide from becoming a crash.
What to watch next
Market participants point to four turning signals: the rupee stabilising, crude falling back below $90, clarity on US trade policy, and an earnings recovery. Until then, expect the Indian rupee under pressure.
*This concludes our four-part series. Sources: NSDL, Union Budget 2026-27, NSE, AMFI, Business Standard, Reuters.