SIPs Fuel Foreign Exit, Weaken Rupee

India's love for gold has long been blamed for putting pressure on the dollar-rupee exchange rate, but there may be another culprit at play. Prime Minister Narendra Modi appealed to citizens in May to refrain from buying gold jewelry for a year, citing the country's reliance on imported gold and the resulting strain on the rupee.

The argument goes that when India buys dollars to purchase gold, it increases demand for dollars, weakening the rupee. This can have far-reaching consequences, including higher energy prices due to increased imports of oil and natural gas.

However, a closer examination reveals another factor at play: the growing love of Indian retail investors for investing in stocks through systematic investment plans (SIPs). According to data from April 2024 to May 2026, foreign institutional investors (FIIs) have net sold Indian stocks worth over $44.2 billion.

This money, which is being used by FIIs to sell their shares, is coming from retail investors who are buying stocks indirectly through SIPs. The total money invested in SIPs has increased significantly, from around Rs 1 lakh crore in 2019-20 to Rs 3.5 lakh crore in 2025-26.

The problem lies in the fact that when foreigners sell their shares and repatriate their profits, it requires rupees to be sold for dollars and other foreign currencies, thereby weakening the rupee. This 'unseen effect' has been overlooked in the discussion on India's gold obsession.