In rupee terms, the Sensex has declined 14.9%, while Nifty has lost 13.1% so far this year.
Foreign investors track the performance of overseas markets in dollar terms as their portfolio returns are typically measured in the US currency. A weaker rupee reduces their returns when Indian investments are converted back into dollars.
“The rupee’s depreciation has adversely impacted returns in dollar terms, but the main cause of poor year-to-date returns is driven by the weak sentiment towards Indian equities,” said Pratik Gupta, managing director and CEO of Kotak Institutional Equities.
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Indian stocks have fallen out of favour with foreign investors since end-September 2024 amid slowing earnings growth, a shift toward AI-fuelled markets such as South Korea and Taiwan, US tariffs and, more recently, the spike in oil prices following the West Asia war. The rupee has declined 6.4% so far this year.
The last time both indices recorded a sharper decline was in 2011, when they fell nearly 36% each in dollar terms.Read more: Nifty sees worst September series in 25 years. What does October hold?
Contrast with global peers
The contrast with several global markets has been stark. In the US, the S&P 500 has gained 12.2% so far in 2026, while the Nasdaq and Dow Jones have risen 15% and 7%, respectively.
In Europe, meanwhile, the FTSE 100 has gained 6%, while the CAC 40 has declined 4% and the DAX has risen 0.8%.
Asian markets have also largely outperformed Indian equities. Japan’s Nikkei has gained 30%, while Hong Kong’s Hang Seng has declined 6% and China’s Shenzhen index has risen 0.8%. Taiwan and South Korea’s Kospi have gained 61% and 72%, respectively. Indonesia’s Jakarta Composite and the Philippines index have declined 34% and 11%, respectively.
The Sensex is in a bear market if measured in dollar terms, having fallen more than 20% so far in 2026. A decline of 20% or more is widely regarded as the threshold for a bear market.
Saion Mukherjee, head of India equity research at Nomura, said the 20% decline itself should not be viewed as a definitive threshold for a bear market, but the correction could affect investor sentiment and fund flows.
“Is it like 20% is a bear market? You can call it in some definition, but no line says 15% or 20%,” he said. “The bigger point is how this correction impacts investor sentiment and domestic flows.”
Cushioning FPI outflows
In the past year, foreign portfolio outflows of over ₹2.17 lakh crore have been offset by strong domestic mutual fund inflows of ₹4.98 lakh crore, cushioning the market from a sharper drop.
“People have been coming in and supporting the market whenever there is a fall. Will they continue to do that?” said Mukherjee. “The amount of money that’s coming into mutual funds as a percentage of financial savings has been at a pretty elevated level in the last four-five years. For incremental investors to come and keep supporting and put money would require the market to be a bit supportive. I think that’s a challenge.”
The Sensex’s dollar-denominated market capitalisation has declined by more than $372 billion so far in 2026, with 10 stocks accounting for around 80% of the erosion.
Market cap erosion
Reliance Industries has seen the largest decline, with its market capitalisation falling by nearly $70 billion, followed by HDFC Bank and TCS, with declines of around $54 billion and $52 billion, respectively.
Infosys and ITC have recorded market-cap erosion of around $32 billion and $22 billion, respectively, while Maruti Suzuki India and Bharti Airtel have each seen declines of around $19 billion. Hindustan Unilever and Mahindra & Mahindra have seen their market capitalisation fall by around $15 billion each.
