Sensex falls 548 points despite record SIP inflows. 4 reasons why

The Sensex fell 547.65 points, or 0.76%, on Monday, while the Nifty 50 declined 157.10 points, or 0.70%, to close at 22,363.35. ITC and Tech Mahindra were among the top losers.Sensex and Nifty end the session lower, reversing gains as foreign portfolio investors continued exit to Dalal Street. New Delhi,Oct 12, 2026 15:49 ISTDomestic investors are continuing to pour money into mutual funds, but the stock market is telling a different story.The Sensex fell 547.65 points, or 0.76%, on Monday, while the Nifty 50 declined 157.10 points, or 0.70%, to close at 22,363.35. ITC and Tech Mahindra were among the top losers.The fall came even as fresh data from the Association of Mutual Funds in India (AMFI) showed that equity mutual fund inflows rose to Rs 38,307 crore in September. Monthly contributions through systematic investment plans (SIPs) also touched a record Rs 32,490 crore.So why is the market struggling despite this steady stream of domestic money? The answer lies in a combination of foreign investor selling, rising US bond yields, expensive crude oil and concerns over domestic liquidity and interest rates. Here are four factors weighing on Dalal Street.FOREIGN INVESTORS CONTINUE TO PULL MONEY OUT The biggest pressure on domestic equities remains the sustained selling by foreign portfolio investors (FPIs).Foreign investors withdrew Rs 44,166 crore from Indian equities in October up to the latest available data, taking their net outflows for 2026 to Rs 3.04 lakh crore. Their withdrawals this year have already exceeded the Rs 1.66 lakh crore pulled out during the whole of 2025. Domestic investors have been buying shares through mutual funds and other investment channels, helping absorb some of the selling. But the money coming in has not been enough to prevent the market from falling.Vinod Nair, head of research at Geojit Investments Limited, said Indian markets failed to hold on to their early gains as sentiment weakened amid continued foreign investor outflows and uncertainty in global markets.“Large-cap stocks remained under pressure from foreign fund selling, while mid- and small-caps outperformed on expectations of a stronger Q2FY27 earnings season,” Nair said.The distinction is important. Strong mutual fund inflows show that domestic investors are continuing to invest, but they do not guarantee that share prices will rise. When foreign investors sell heavily, domestic buying may cushion the fall without being enough to reverse it.US BOND YIELDS ARE MAKING INDIAN STOCKS LESS ATTRACTIVEAnother source of pressure is the rise in US government bond yields. The yield on 10-year US bonds has climbed to a three-year high, giving global investors an alternative to riskier investments such as emerging-market equities.Indian stocks offer the potential for higher returns, but those returns come with market risk. When US bonds offer more attractive yields, overseas investors have less incentive to take on that additional risk.Currency movements add to the calculation. If the rupee weakens against the dollar, foreign investors can lose part of their returns when converting money earned on Indian investments back into dollars.Nair identified the rise in US bond yields and external uncertainties as key reasons Indian markets failed to sustain their early gains on Monday.For domestic equities, the concern is not just that foreign investors are selling today. It is that elevated bond yields could keep them cautious for longer, limiting the money available to support a sustained market recovery.CRUDE OIL AND THE RUPEE REMAIN A HEADACHECrude oil is another pressure point. Brent has traded above $100 a barrel amid geopolitical tensions, including continued Houthi attacks on Saudi Arabia and regional energy infrastructure.This is a big challenge for India, which imports much of its oil. Higher prices mean a larger import bill and greater demand for dollars. Expensive crude can also add to inflation and raise operating costs for businesses, putting pressure on corporate earnings.Meanwhile, the rupee rebounded on Monday after the Reserve Bank of India opened a special window to meet oil marketing companies' dollar requirements and tightened foreign-exchange hedging norms.Nair said the RBI's steps helped ease pressure on the currency. But he cautioned that geopolitical uncertainty and the risk of disruptions to energy supplies continued to weigh on sentiment.A stronger rupee offers some relief, but it does not remove the underlying risks. If crude prices remain elevated, India could continue to face pressure on its import bill, currency and inflation outlook. Those concerns can make foreign investors more reluctant to increase their exposure to Indian equities.RBI'S LIQUIDITY MOVE AND INFLATIONBanking stocks led the decline on Monday after the RBI raised the daily cash reserve ratio (CRR) maintenance requirement to absorb surplus liquidity.The CRR is the portion of banks' deposits that they must maintain as cash reserves with the RBI. A higher daily maintenance requirement can affect how banks manage their available funds, making liquidity conditions an important consideration for investors.Markets were also awaiting domestic consumer price index (CPI) inflation data for clues on the outlook for interest rates and the possibility of further monetary tightening.The combination of tighter liquidity conditions, uncertainty over inflation and continued foreign selling weighed on sentiment. Investors are trying to assess not only how global developments will affect India, but also how domestic monetary conditions could influence credit growth, bank earnings and the wider economy.There is, however, a counterpoint to the gloom. Nair said mid- and small-cap stocks outperformed large-caps on expectations of a stronger second-quarter earnings season. That suggests some investors are still looking for opportunities in companies whose earnings may hold up despite the broader market pressure.WHAT NEXT FOR THE MARKET?Equity mutual funds attracted Rs 38,307 crore in September, while monthly SIP contributions hit a record Rs 32,490 crore, according to AMFI data. Yet, steady buying by domestic investors has failed to offset heavy foreign selling and mounting global uncertainty.A sustained recovery will depend on whether foreign investors return, US bond yields ease and crude oil prices cool. The rupee’s trajectory and the upcoming corporate earnings will also shape sentiment.Until then, domestic inflows may limit the market’s losses, but they are unlikely to drive a lasting recovery on their own.- Ends