Market sentiment was also weighed down by cautious commentary by the US Federal Reserve, which late Wednesday left the federal funds rate target range unchanged at 3.5-3.75%.
The rupee fell past the 95-per-dollar mark Thursday on its way to hitting a new all-time low of 95.34-per-dollar as fresh concerns about the war in West Asia propelled global crude oil prices to a four-year high. Having closed at 94.85 Wednesday, the rupee ended Thursday only slightly weaker at 94.92.
Domestic stock markets also behaved similarly, with Nifty and Sensex falling as much as 1.6% during the day before closing 0.75% lower. However, for April as a whole, the two benchmark indices were up 7-8% — the biggest monthly gain in over two years — after falling more than 11% in March.
Investor apprehension weighed heavy Thursday as Brent crude oil prices surged to $126 per barrel, with worries mounting that the conflict in West Asia could escalate after American news website Axios reported that US President Donald Trump would be briefed on “new plans for potential military action” in Iran.
Market sentiment was also weighed down by cautious commentary by the US Federal Reserve, which late Wednesday left the federal funds rate target range unchanged at 3.5-3.75%.
“The Fed’s messaging has certainly turned more hawkish,” Madhavi Arora, Chief Economist at Emkay Global Financial Services, said. It is unlikely the central bank “will move on rates until there is greater clarity” on the conflict and evidence that effects of the US tariffs are fading, Arora said.
The rupee is now down more than 4% since the US and Israel attacked Iran on February 28, with Foreign Portfolio Investors (FPIs) continuing to leave Indian financial markets due to concerns about how exposed the country’s economy is to higher energy prices.
According to Barclays analysts, the rupee is “one of the more vulnerable currencies to an energy price shock”. “After breaking through the key psychologically important level of 95.0, risks of further INR weakness remain, with potential to hit our 2026 year-end forecast of 96.80 sooner than expected,” Barclays said Thursday.
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After selling $12.7 billion of stocks in March, April has seen FPIs pull out to the tune of $6.5 billion. So far in 2026, FPIs’ net equity sales have totalled $20.7 billion — more than the $18.9 billion they withdrew in all of 2025. Several foreign brokerages, including HSBC and Morgan Stanley, have downgraded their view on Indian equities in recent weeks.
“…what we are witnessing is a textbook reflexive trade — rising oil prices triggering FII (Foreign Institutional Investors) outflows, FII outflows compounding the dollar demand from oil importers, and the combination overwhelming whatever defence the Reserve Bank of India (RBI) is putting up,” said Anindya Banerjee, Head of Commodity and Currency Research at Kotak Securities.
“The RBI is intervening and will continue to intervene. But the central bank’s strategy here is volatility management, not level defence,” Banerjee said.
The rupee breaching the 95-mark marks a reversal of the gains made in late March and early April after the RBI acted to curb speculative bets against the currency. Economists have warned that India’s Balance of Payments — the balance of the trade deficit and capital inflows such as Foreign Direct Investment and remittances — could be in the negative zone for a third straight year in 2026-27 and requires structural solutions.
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“Exchange rate cannot be construed a shock absorbing mechanism in perpetuity, as increased levels of uncertainties and volatilities render it to transform into a pass-through mechanism of imported inflation seeping through multiple channels,” Soumya Kanti Ghosh, SBI’s Group Chief Economic Advisor, said in a note Wednesday. “It is thus imperative that a comprehensive set of measures are required given that BoP (Balance of Payments) could be negative for the third consecutive year.”
Ghosh expects India’s Balance of Payments to be (-)$28 billion in 2026-27.busi
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