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April 15, 2026
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Crisil Economy First Cut: Financial conditions tighten significantly
April 15, 2026
Report
Report
Macroeconomics | First cut
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- The West Asia conflict led to a significant tightening of India’s financial conditions in March, as it triggered foreign portfolio investors (FPIs) outflows, a sharp fall in the rupee and firmed up bond yields. Domestic liquidity also tightened due to tax outflows. The Crisil Financial Conditions Index (FCI) fell outside the defined comfort band, dropping to -1.5 from 0 in February
- While the FCI has been negative for 10 of the past 12 months, this is the first time since May 2022 that it has fallen below the comfort zone of one standard deviation from the long-period average (measured since April 2010). This is the lowest FCI reading since the Covid-19 pandemic outbreak
- FPIs recorded their largest monthly net outflow since the Covid-19 pandemic, putting pressure on the rupee, equity markets, the 10-year government securities (G-sec) yield and systemic liquidity. FPI outflows, initially triggered by tariff uncertainty and recently by the conflict, contributed to tighter financial conditions in fiscal 2026, with FPIs net-selling $16.6 billion in fiscal 2026 compared with a net inflow of $2.7 billion in fiscal 2025
- The rupee depreciated sharply against the dollar, with a 2.2% average decline in March—the largest in a single month since October 2022. A stronger dollar, driven by safe haven demand, also contributed to the rupee’s decline
- Financial markets have responded more to global market volatility than what the real sector indicators suggest so far. Since the West Asia-led tremors began, the RBI has demonstrated its ability to mitigate the adverse impact on India’s financial and currency market using multiple instruments, ranging from open market operations to regulatory measures in the forex market.
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