The Fed just raised rates. Here's how that pulls money out of India

On 16 September 2026, the US Federal Reserve raised its key interest rate by 0.25 percentage points to a range of 3.75% to 4%. It was the Fed's first hike since 2023, and all 12 voting members backed it. "Inflation remains elevated," the Fed said.

That decision was made 13,000 km from Dalal Street. Here's why Indian investors are feeling it.

The chain reaction

When the Fed raises rates, US government bonds pay more. Global fund managers can now earn more than 5% a year on 10-year US Treasuries, which they treat as the safest asset in the world. Indian shares, by comparison, carry currency risk, political risk and, this year, losses. Geojit's VK Vijayakumar put it simply: "as long as the US bond yields remain elevated, FPIs will continue to sell."

The selling, in numbers

Foreign portfolio investors, or FPIs, had actually been buying Indian shares over the summer. That reversed in September, the month of the Fed hike.

By 11 October, net FPI selling for 2026 had crossed ₹3.04 lakh crore, compared with ₹1.66 lakh crore in the whole of 2025.

Analysts also cite high oil prices and an AI-driven rally in North Asian markets, which is drawing foreign money elsewhere in Asia. Indian domestic investors, through SIPs and mutual funds, have been buying much of what foreigners sell, which is why the market has fallen but not collapsed. Even so, the Nifty was down 13.87% for the year as of early October.

The rupee

Every foreign investor who sells Indian shares and leaves has to convert rupees into dollars. Add a strong dollar and a large oil import bill, and the rupee weakens. It closed at ₹96.73 to the dollar on 9 October, close to its record low of about ₹96.96 set in May. The RBI has been selling dollars from its reserves to slow the slide.

What it means for you

• PricesA weaker rupee makes imports dearer: fuel, phones, laptops, foreign travel and overseas tuition.
• Interest ratesA weak rupee and imported inflation were part of why the RBI raised rates on 7 October. See our explainer.
• InvestmentsFunds that hold US stocks gain in rupee terms when the rupee falls. Indian exporters, like IT companies, also earn more rupees per dollar.

What to watch

The Fed's own projections now point to a year-end rate of 4.1% to 4.4%, and markets are pricing one more quarter-point hike in December. If that happens, the pressure on Indian markets and the rupee is unlikely to ease quickly. If US inflation cools and the Fed pauses, flows could turn around just as fast as they did in July. Educational content only, not investment advice.