Indian stocks recorded their steepest monthly decline since March as foreign investors withdrew $2.7 billion in September, reversing two months of buying amid rising oil prices and global borrowing costs.

The Nifty 50 fell 6.1% during the month to close at 22,620.45 on Wednesday, 30 September, while the BSE Sensex lost 5.8% to finish at 72,480.29. Both indexes declined for a second consecutive month.

Foreign portfolio investors sold ₹25,662 crore ($2.7 billion) of Indian equities during September, their largest monthly withdrawal in six months, according to National Securities Depository data. Their net selling for 2026 reached about $26.8 billion.

Indian equities finished Wednesday’s session lower despite recovering earlier in the day. The Sensex declined 0.07%, while the Nifty lost 0.42%, extending losses for a third consecutive trading session.

Kotak Mahindra Bank gained 2.86%, while ICICI Bank rose 2.31%, helping limit the Sensex’s decline. Eternal, Sun Pharmaceutical Industries, Titan, Tata Steel and Adani Ports were among the major losers.

The monthly losses were widespread. All 16 major sector indexes finished September lower, with information technology stocks falling 11.2%, their steepest monthly decline among the sectors.

Financial services stocks lost 6.3% during the month amid concerns about proposed regulatory changes, including restrictions on insurance distribution commissions. Bajaj Finserv fell 14.4%, while Max Financial Services declined 12.7%. The broader Nifty midcap index declined 7.6%, while the smallcap index fell 3.4%.

Higher borrowing costs have been another concern for investors. The US Federal Reserve raised interest rates in September, alongside several other major central banks, increasing pressure on emerging-market assets.

The benchmark US 10-year Treasury yield climbed above 5.27% earlier this week, its highest level since 2007, before easing slightly on Wednesday.

Higher yields make US bonds more attractive relative to riskier investments and can encourage overseas investors to withdraw funds from emerging markets.

Oil stays above $100

Brent crude traded around $103 a barrel on Wednesday as stalled negotiations between Washington and Tehran prolonged uncertainty over energy supplies.

The international benchmark was heading for a monthly gain of about 14%, according to Reuters. US President Donald Trump denied reports that his administration was prepared to ease sanctions on Iran, while diplomatic efforts to resolve the conflict continued.

An increase in crude prices raises the country’s import bill and can weaken the rupee by increasing demand for dollars. It also raises costs for businesses that depend on fuel, transport and petroleum-based raw materials.

Rupee weakens as foreign investors sell

The rupee closed at 95.83 per dollar on Wednesday, strengthening from 95.98 in the previous session. It still lost about 0.7% in September and 1.2% during the July-September quarter, making it one of Asia’s weaker-performing currencies.

The Reserve Bank of India has intervened in foreign exchange markets to limit volatility and prevent the currency from retesting its record low of 96.96 per dollar.

The central bank’s operations have also affected liquidity in the banking system. Reuters reported on Tuesday that foreign exchange interventions helped drain nearly $20 billion from surplus rupee liquidity during September.

A weaker rupee reduces the dollar value of Indian equity holdings, adding to losses for overseas investors when share prices decline.

Domestic institutional investors have continued buying equities, absorbing some of the selling by foreign funds. Their purchases, however, were insufficient to prevent September’s broad market decline.

Policy measures provide some support

The foreign selling has continued despite measures introduced by the RBI in June to attract overseas capital and stabilize the currency. The central bank offered discounted foreign exchange swaps, support for hedging costs on certain non-resident Indian deposits and wider access to government securities for foreign investors.

The RBI’s concessional foreign exchange swap facility had attracted $143.6 billion in inflows as of 18 September, according to central bank data. The inflows have supported India’s external accounts, although pressure from high crude prices and foreign equity withdrawals has persisted.

India’s stock market has also lagged some Asian peers attracting investment tied to artificial intelligence. Taiwan and South Korea have benefited from investor demand for semiconductor manufacturers and other companies supplying the AI industry.

India’s benchmark indexes have relatively limited exposure to those businesses, reducing their participation in the global AI investment boom.

The selling has extended into the derivatives market. Foreign investors increased their net short positions in index futures to about 267,000 contracts from 184,000 at the previous expiry, according to Nuvama Research data cited by Reuters.

All eyes on RBI decision next week

Investors will now turn to the Reserve Bank of India’s 5-7 October monetary policy meeting. The central bank held its repo rate at 5.25% in August, but rising inflation and higher global borrowing costs have strengthened expectations of an increase.

About 60% of economists surveyed by Reuters expect a quarter-percentage-point increase to 5.50%. Consumer inflation reached 4.82% in August, exceeding the RBI’s 4% target for a third consecutive month.

India’s economy expanded nearly 8% in the April-June quarter, while higher energy costs and a weaker rupee have added to inflation pressures.