Indian equity benchmarks experienced a downturn in early trading Monday, as persistent foreign fund outflows and uncertainty surrounding a trade deal with the U.S. kept investors on edge. This also pushed the rupee to a record low.

At approximately 9:30 a.m. IST, the Nifty 50 was down by 0.51% at 25,913.45 points, while the BSE Sensex registered a loss of 0.46% to reach 84,875.85.

The market's subdued performance follows a two-session rally. The primary factors contributing to the decline are continuous selling pressure from foreign investors and the ambiguity surrounding a potential trade agreement between the United States and India, which has negatively impacted investor sentiment.

The rupee's drop is making imports more expensive and adding to investor unease, especially for sectors that rely heavily on foreign capital. Wide-ranging declines across both small- and mid-cap stocks signal broader caution, and persistent outflows hint that global investors might keep their distance without clearer direction on trade agreements or currency stability.

The uncertainty stems from a long-awaited U.S.-India trade deal, especially after the U.S. imposed tariffs earlier this year in response to India's Russian oil purchases. With a breakthrough looking months away, export prospects are cloudy.

Concerns over U.S.-India trade relations have been mounting, particularly after reports that the U.S. may impose tariffs on rice imported from India.

Fifteen of the 16 major sectors logged losses. The broader small-caps and mid-caps shed 0.5% each. Foreign portfolio investors have offloaded shares worth $1.32 billion in six sessions this month, a figure three times greater than the $425 million in outflows observed in November.

"Domestic markets stayed under pressure as investors booked profits ahead of the Fed's decision and commentary, pivotal for foreign flows into Indian equities. The delay in the India-U.S. trade deal is adding to the drag on sentiment," said Kranthi Bathini, director of equity strategy at Wealthmills Securities.

U.S. Treasury Secretary Scott Bessent previously stated that Washington was still working towards a deal, with Deputy U.S. Trade Representative Rick Switzer expected to visit India on December 10-11.

Wall Street banks have pencilled in fewer Fed reductions for 2026 amid lingering inflation concerns and expectations of a more resilient U.S. economy. IT companies, which earn a significant share of their revenue from the U.S., lost 1.5%. Metal and auto indexes lost 0.7% each.